Dear Kim,
While I was growing up, my parents weren’t always the most money-conscious. They both had good-paying jobs for the time, but it seems like they don’t have much when it comes to savings. They used credit cards to go on vacations, we pretty consistently ate out, etc. We were a happy family, but I feel like I don’t know how to manage my own money now as an adult. I’m also conflicted because I know I need to work on my credit, but I’m scared of applying for a credit card because I only want to spend what I know I have. (Student loans burned me back in the day).
I’m in my mid-thirties, I’ve been with my company for seven years now, and I have a 401(k) with my company and a Roth IRA which I feel good about, but apart from that, I feel very lost in budgeting my paychecks, knowing what goals I can realistically make for myself, etc. I feel like I know some of the right things to do, like my 401(k) and Roth, but not why they’re right. It sorta feels like throwing things at the wall and hoping something sticks, if that makes sense. I want to be proactive with my money now before I get older and realize I could have been doing so much more.
How can I become more knowledgeable and intentional with my savings? What are some starting points for someone in my shoes?
Sincerely,
Learning How to Save
Dear Learning,
It seems like you have several issues you’re wanting to work through. Tackling them all at once may be a bit overwhelming, so I suggest working on one at a time. The best place to begin may be with your retirement accounts at work since you are already participating. I would first look to see if you are contributing at least to the amount that your company matches, and then look to see if your monthly cash flow will allow you to increase it some. Most plans will allow you to have an automatic increase in place from year to year, and that makes your retirement savings less intrusive. Look at the investments you have chosen and make sure they match the time until you plan to retire.
Next, I would look at your monthly expenditures and see if you can locate any leakage in your cash flow. If you want to save more, you have to determine where you can find money to help. Most of us have dollars that float away each month and we have no idea where they went. For a month or two, track every dollar you spend and then determine which ones are impulse buys or which ones you can cut back. Things like eating out, morning coffees, impulse shopping and the like.
From there, determine if you have enough in savings to cover short term needs and build that up to a comfortable level. Then you can begin to save for intermediate goals, after determining what those goals are. It really helps to have concrete goals in mind as you set your saving goals. Having something in particular to work towards gives you motivation to cut back on unnecessary expenses.
I hope this helps, and I wish you the best of luck.
Sincerely,
Kim
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