You think don't have enough money, yet I want you to save more? Yes. Here's how. We all have a tendency to forget about the money we don't see directly in front of us. Our paychecks typically deduct for a wide variety of taxes and insurance, and once the shock of how little we get to take home wears off, we simply do not pay attention to whatever comes off the top. If we add an automatic deduction directly to a savings account, we won't notice it.
Retirement savings should go directly into your 401k. Do this first, before you work on the other savings. You will grow old someday, if all goes well. When that happens, either you won't want to work anymore, or you won't be in good enough health to work. Your future self will be very grateful you saved to make all those years of being a geezer more bearable. Max out your contributions at work first, because the dollar amount you can put in a 401(k) is significantly larger than the maximum you're allowed to contribute to a regular IRA or Roth IRA—almost four times as much, in fact. Only the SEP-IRA, meant for business owners and self-employed sole proprietors who earn a profit, has a feature that allows individuals to pile up significant retirement cash. Of course you're not looking forward to growing old. You're sure it'll never happen to you. Save for retirement anyway.
Having set up retirement savings on automatic, it's now time to organize the other savings accounts. Some employers offer the option of making a direct deposit to a savings account as well as a checking account, which makes the automatic savings very easy. If yours doesn't, see if your bank will set up an automatic withdrawal from your checking to your savings. There's also the method of treating regular savings like the first bill you pay once you receive your paycheck, and writing that check to savings, or transferring the money from one bank to another, before you pay for anything else.
How hard is it to save a little more money? If you eat out four times a week as The Simple Dollar and other sources say is average, you're spending around $230 a month on commercially prepared meals.
If all you do is save the equivalent of one night out, $25 for two people (and find something fun to do that night that does not involve spending money, so you don't feel deprived) you will have approximately $100 extra for savings per month. At this time of New Year's resolutions, I've already seen a lot of people resolving to eat out less. Make the goal specific by signing up for automatic savings in the amount you intend to save per week, and you're done.
Once money has gone to a savings account, it should be subdivided and transferred into other savings accounts. Here's the rundown of what you need:
1. Rainy day savings of eight to ten months of living expenses. Do I have to tell you why this is a really, really good idea? Have you forgotten 2008 already? Build up this savings account as fast as you can.
2. Savings for large purchases, usually a car. Unless you live a strictly urban life, you need a car to get to work, to shop, to socialize, and more. Cars fall apart and have to be replaced. The moment your monthly payment ends on your current car, you should divert the same dollar figure (okay, rounded to an even number) to a savings account for the next vehicle. You can divert less if you imagine that the next car you buy will costs thousands of dollars less. Not likely, is it? If you're still paying on a vehicle, put a few token dollars into the fund for the next one, anyway. Your refrigerator might break down.
3. Savings for vacations, toys, life's pleasures, etc. Everyone should have some savings that are not allocated to the business of life. Each person in a relationship should have a separate savings account, even if you funnel the regular paycheck deposits into a joint checking account. If I want to give my spouse a present, I don't want to do it through a joint account. It spoils the fun.
At first, the dollar amounts that go into your savings accounts may not amount to much. Be patient. Increase the amounts as you can. Getting into the habit of saving regularly is more important than the immediate total. You'll have more confidence to face life's ups and downs when you know you have savings.