Spending for your financial future
Saving alone may not get you there. Saving and investing gives you a better chance to reach your financial goals.
Let’s start with a brief definition of saving and investing. Saving is holding onto the money you have not spent. Investing is putting your money into financial products that have the potential to increase the amount of money you started with through interest, dividends, or price increases.
The trick to saving for any goal is to spend less than you earn. That’s not easy if you have trouble making ends meet or if you find it difficult to resist spending. It’s common to have difficulty saving money. Here are some ideas that may help you:
- Start with a spending plan - a guide for how you want to spend your money. Some people call it a budget, but since we have to spend to reach our financial goals, a spending plan seems appropriate.
- Pay yourself first - put away the money designated for goals first. You can have the money automatically withdrawn from your checking account and put into savings or investment products. What you don’t see you don’t miss. Learn easy tips and tools at America Saves.
- Put bonuses and raises towards savings.
- Make saving a habit. It’s easier to keep saving once you’ve started.
- Revisit your spending plan every few months to be sure you are on track. Our income and expenses do change over time.
We need to do something with our savings other than keep the money at home. This is where we need to consider risk. Any time you give your money to someone to hold or manage for you, there is an element of risk that it will not be returned.
With so many options, where do you start? Thoughtful diversity is the key. The idea is to utilize a blend of financial products that provides the maximum return for your money.
- Start an emergency fund to cover unexpected expenses that would otherwise find their way onto a credit card. Experts recommend saving 10% of your income each month until you have enough money to cover three to six months of expenses. If 10% seems impossible, start at a lower monthly percentage and work your way up. Since an emergency is never planned, put your money somewhere easily accessible, like an interest-bearing savings account or money market account.
- Whether you’re 25 or 55, retirement should be on your mind. Take advantage of an employer’s 401(k) or other sponsored investment program especially if they offer matching funds. Be sure to contribute enough to get the full company match – that’s free money!
- In addition to maximizing your contributions to a matched savings program, make regular contributions to a traditional or Roth IRA and/or mutual fund(s). Learn more about these investment options and access calculators and other planning tools at the Social Security Administration or finra.org .
- If you have children, consider making monthly contributions to the Michigan Education Savings Program (MESP), our state’s 529 plan, for each child. Participation in the MESP offers several perks, including: contributions and any earnings used to pay for qualified higher education expenses are federal and state income tax-free, you can receive a Michigan income tax deduction on contributions as well as Federal Estate and Gift Tax Benefits. MESP is offered by the State of Michigan and TIAA-CREF; Tuition Financing, Inc. is the Program Manager.