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Simple Ways to Save: Take Baby Steps; Keep Cash Out of Reach

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May 3, 2017
Baby steps: simple retirement saving strategies
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If you’re one of those people who wracks your brain trying to figure out the complexities of saving for the future, take a moment and listen to the wise words of a sage voice from the past: martial arts legend Bruce Lee.

To me, the extraordinary aspect of martial arts lies in its simplicity. The easy way is also the right way.

Saving doesn’t need to be complicated to be effective. Sometimes it’s the simple things that can make the difference between meeting your objectives and falling short. We would describe these philosophies as “out of sight, out of mind” and “letting the little things add up.”

Put Your Savings on Autopilot

Many experts agree that one of the best ways to build for the future is to save your money before you see it. This approach might consist of regular contributions toward your savings while eliminating the temptation to spend money you would otherwise save.

Perhaps the best-known way to do this is to have an automatic deduction taken out of your paycheck–based upon a percentage you choose—and put toward a 401(k) or other retirement plan. Does your employer match your deductions? If so, by how much? Is it dollar for dollar, up to a certain percentage? If possible, maximize this “free money” by taking the highest percentage deduction that your company will match.

Another savings program sometimes offered by public companies is an employee stock ownership program, or ESOP. The way an ESOP generally works is a percentage of your pay is taken out of each paycheck and held. Then periodically, perhaps twice a year, the ESOP administrator uses those funds to buy shares of company stock in your name, often at a discount to the prevailing stock price.

Take Baby Steps

Even if your company doesn’t have an ESOP, you can always set up a dividend reinvestment plan (DRIP), in a retirement account, or even a taxable brokerage account. With a DRIP, dividends paid by stocks you own can be automatically reinvested into more shares.

Another simple way to save without even thinking about it is to use an app that automatically collects and deposits your spare change. These apps work by connecting your checking account to their service. Each time you make a purchase using your debit card, the transaction is automatically rounded up, and the extra change is deposited into a savings account. It might not seem like much at first, but you might be surprised at how fast the money can pile up.

Sweating the Small Stuff

No, this isn’t another appeal to cut that morning latte and deposit the funds into your retirement account. But it’s true that small savings add up over time. Saving just $100 per month will translate to $6,000 in savings in five years—money that can be deposited into your retirement account. Cut $250 from your monthly bills and you’ll have $15,000. 

And there are plenty of ways to save that don’t involve changes to your caffeine intake. One alternative is to look at the bills you currently pay on a regular basis—cable, Internet, phone, even gas and electric—and see if you can get them reduced.

For example, some markets are experiencing a price battle between Internet and cable providers. If you’re willing to consider a change in provider, you can use this to your advantage. See what you’re paying now and check out the deals that others are offering. Get on the phone with your current company and tell them you’re thinking of leaving them, then call your potential alternative and tell them you’re thinking of switching to their service. You may be surprised by the offers you receive.

You can use this same technique with your home and mobile phone companies as well, especially if you’re able to bundle services under one provider. The trick is to track the money you save and write yourself a check each month. Think of it as paying yourself a dividend.

Although utility companies may be less likely to agree to price reductions, you can do things like purchase LED bulbs, auto-timers, and “smart home” thermostats to make your energy use more efficient and thus lower your bills—freeing up more money for savings. However, you must also consider the upfront costs of energy efficient products versus the time it may take to recoup those costs through savings.

Like Master Lee said, the right way is also the easy way. By automating the process—and doing a little homework—you can meet your savings objectives the right way, as well as the easy way.

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