How to Save Money for a Rainy Day

Does that sound like anyone you know? Does that sound like everyone you know?

According to a report last January by the Pew Research Center(i), a whopping 77% of Americans say they are always looking for ways to save money, 63% say they don't save enough, and 36% say they often or sometimes spend more than they can afford. If you would rather count yourself among the elite 32% of Americans who say they save enough, here is an easy and proven 7-step plan to help you build a real nest egg..

Step #1 - Set a savings goal. How much money would you like to save each payday or each month? Don't worry about the how-to at this point. That comes later. For now, just come up with the number that fits your definition of "saving enough." Financial experts all the way back to biblical times have recommended saving 10%. If a number doesn't readily spring to mind, start there. Let's use this as an example: Net monthly income $3,000 x 10% = $300 savings per month.

Step #2 - Break it down. A $300 monthly savings goal will seem less daunting and more attainable if you break the total down into a small daily savings goal. Example: $300 / 30 days = $10 per day. That doesn't seem nearly so tough, does it? If you can honestly say that you do not, on the average day, spend $10 on something that you really could get by fine without, then go back to Step #1 and re-evaluate.

Step #3 - Pay it forward. When you deposit your paycheck to the checking account, make it a habit to deposit something in your savings account at the same time. Make it a standard amount, no matter how small. Every dollar deposited on payday is one less dollar you will need to save each day the rest of the month.

Step #4 - Let your boss do it. Does your company offer a payroll savings plan? Sign up for it! You'll be surprised to find that you don't miss that $25 or $50 that you never had in your hot little hand. Most companies these days offer a 401K retirement savings plan and even offer a small matching contribution. This is FREE MONEY. Go get it! You probably won't notice much difference in your take home pay, either. Since this is a pre-tax contribution, you'll pay less Federal Withholding Tax. For many folks, it becomes a "wash," with the money going to your savings investment instead of Uncle Sam.

Step #5 - Let your bank do it. Perhaps your bank offers a "keep the change" savings plan where they round up your checks to the nearest whole dollar and they put the difference into savings for you. If not, do it on your own. Enter your checks on the register as whole dollars. When you balance your checking account, transfer the extra cash into the savings account.

Step #6 - Let your investments do it. Put the money you save to work for you. Don't let it linger in a savings account paying ridiculously low interest. Make use of money market checking and savings accounts, which pay substantially higher interest rates and still provide ready access to your money. Shop around for the highest interest, shortest term, and lowest minimum deposit CD (Certificate of Deposit) to make your money work harder still. Remember, every dollar saved or earned reduces that total amount you must save every day to reach your monthly savings goal.

Step #7 - Keep the broken change cup. And, keep saving that spare change. If you use the other six steps offered here, you might just find that, at the end of the day, the spare change in your pocket covers the last couple of dollars you need to save daily to meet your monthly saving goal. Just don't forget to deposit that money into savings regularly so that you're not tempted to dip into it. In spite of what you may have heard or thought before, saving money doesn't have to be a painful sacrifice and it doesn't require living the joyless life of a penny-pinching tightwad, either. Set your savings goal, break it down into a small daily goal, get help saving wherever you can find it, and don't beat yourself up if you don't meet or exceed your goal each month. If that happens (and it probably will) congratulate yourself for saving more than you ever did before and just keep on keeping on. You can do this.

(i) We Try Hard. We Fall Short. Americans Assess Their Saving Habits. January 2007. Pew Research Center