So with all of this basic information, how do you go about saving money?
1. Open a checking account if you do not already have one.
2. Open a savings account if you do not already have one.
3. Establish an online account if you have Internet access so you can transfer money at your discretion. (If you don’t have Internet access, don’t worry. You can make transfers in person.)
4. Establish an easy-to-earn amount of money to put into the savings account each week. Choose a day to do it (I use Thursday). How much money? Start off simple to get into the habit — $10 to $20 a week is good. In business we call this paying yourself and calculate it by starting with one hour’s worth of income every day, or 5 hours a week. A person making minimum wage ($7.15) would be depositing $35.75 a week into this savings account. At the end of 5 years, $35.75 a week ($1,859 a year) would had grown to $13,158, including interest. Imagine increasing that amount to $100 a week. You’d have $36,806 at the end of 5 years.
5. Once you have enough in your savings account equivalent to 2 to 4 months salary, it is time to start putting funds into a higher-powered money-making account. If you are making minimum wage, you need to have from $2,288 to $4,576 in the savings account to meet the 2 to 4 months of emergency money. At the $35.75 a week deposit, it should take you less 1 1/2 years to build this reserve fund. Keep your savings account and growing interest.
6. Now decide to make future deposits into a high-yield savings account or IRA. Both are fine choices, depending on your age and goals. If you think you will need the money within 10 years, then choose a high-yield savings account or a fixed-term IRA. If you would like to start saving for longer term goals, such as retirement, then open a SEP IRA. Putting $75 a week into a IRA will give you a return of roughly $61,453 in 10 years, $227,811 in 20 years, $678,146 in 30 years and $1,897,224 in 40 years. You can determine this yourself by utilizing on-line retirement calculators to determine your return on what you deposit weekly.
7. Once your savings account is adding interest and you are making deposits into your IRA, you will need to decide the best use for this money. Increasing payments into your IRA will mean you have more to retire on. Making additional deposits into your savings account will give you more of a buffer against emergencies. Opening a high-yield savings account will further increase your income. You’ll be surprised at how soon your financial situation starts looking great due to your efforts in developed a system of easy, consistent depositing.