A recent Bankrate.com survey of 1,000 adults suggests that 66 million American adults have zero dollars saved for an emergency. That dovetails nicely with a report that came out earlier this year from the Federal Reserve, which looked at the economic well-being of American households. And things are not going so well. About one-third of 5,695 respondents to a 2015 survey revealed they would have trouble dealing with a $400 emergency.
Start small. That’s advice from Mackey McNeill, founder and president of Mackey Advisors, a wealth management firm in Bellevue, Kentucky.
“If you have never saved anything in your life, save $5 a week or $10 a week,” McNeill says, adding: “Pick a number that, regardless of disaster, you can achieve.”
After you do that, McNeill advises, “Put the money in a separate account and review it once a month. After three months, consider an increase. After three more months, consider an increase again,” and keep repeating.
“The reason people fail at saving is they start too high. … So they set themselves up for failure,” she says. “Start small. You will be so excited that you met your goal, you will automatically want to do more and achieve more. When you start small, you set yourself up for success. Success begets success. I have never had anyone try this who did not succeed.”
Reward yourself when you save money. This is important, McNeill says, advising that whatever the reward be, make it something free.
For instance: If you save $10 a week, then every time you hit $40 saved, rent a movie at the library or take a walk in the park, she explains.
Whatever you do, “make it something that really nurtures you,” she says. “It doesn’t matter what it is. A hot bath will work. But when you give yourself the reward, you are reinforcing the behavior you want.”
Trim back your expenses. One thing that probably keeps most people from saving more is that there may not be enough money to go around. That’s definitely the case if there are expenses that could be easily cut, or debt that’s weighing you down.
“When talking with clients that are beginning to put together a plan to save money, or begin their accumulation phase, the first thing I advise them to do is pay off any high-interest debt like credit cards,” says Dan Milan, managing partner of Cornerstone Financial Services LLC, a wealth management firm in Birmingham, Michigan.
“Paying off high-interest debt is the most important first step in beginning any accumulation phase,” he says. “I consider this part of a savings plan because everything you pay off, you are eventually saving money on high interest.”
Make it easy.Assuming you have a bank — a Federal Deposit Insurance Corporation study suggests that 9 million Americans don’t — the easiest way to save money is to set up a savings account and then direct a specific amount to go regularly from your checking account to your savings account, says Michael Eisenberg, a certified public accountant and personal financial specialist with Innovative Wealth Advisors in Encino, California.
“Every time your paycheck hits your checking account, you should instruct your bank to move a set sum directly into your savings account,” he says. “This makes it easy and seamless.”
Eventually, he says, you won’t even miss the money because it’s automatically disappearing, and you’ll get used to working with the money going into your checking account.
Susan Howe, a certified public accountant in Philadelphia, echoes that advice. “Even a modest amount will add up quickly if you set it for a weekly transfer. Just be sure there are no fees,” she says.
Try opening a 401(k) or an IRA. That’s what Leonard Wright, a wealth management advisor in San Diego, suggests. In particular, Wright recommends opening up a Roth 401(k) or a Roth IRA.
“This money grows tax-free for life, is not subject to required minimum distributions when you retire and best of all, is tax-free when you need it — and can help with education expenses for your children,” he says.
The only downside? Some 401(k)s and IRAs require you to have some money to start the account, like a minimum deposit of $1,000, and if you have saved zero dollars, that may be a tough hurdle. But not every 401(k) and IRA has a minimum deposit — or some will waive that if you commit to paying a certain amount of money a month — so look around.
You also may want to check out myRA, a retirement savings account from the United States Department of the Treasury. It was designed for people who have had trouble saving money and for people who don’t work for an employer that offers a vehicle for saving for retirement. It has no fees, and you can open a myRA for as little as $25.
But McNeill notes that wherever you put your money, whether in a 401(k) or other savings account, “in the beginning, it’s irrelevant,” — as long as you’re saving money somewhere. “What you are trying to do is create a new habit.”