With everything in life—sports, careers, relationships, etc.—there are people who compete below us, and people who compete above us. In order to grow and continue to progress in any area, I have learned that I need to surround myself with people who outcompete me so that I can stretch myself out of my comfort zones, learn what I don’t know that I don’t know, and strive to become better. If I were to just surround myself with those that are equal in my strengths, then my strengths may not have the chance to expand and evolve and I may plateau at the tender age of 28.
With a personal savings rate of 5.5% in the U.S., it’s clear that we are not all highly effective savers at this point in time. But if we want to be, then we should first identify, and secondly emulate the habits of people who have all ready achieved (and continue to achieve) superstar status in the saver realm.
Below I have identified 7 habits of highly effective savers, many of which I practice myself:
- Respect and Defend Their Savings Accounts: What good is a saving account if it’s really a money laundering front for your checking? Consider your savings account a black hole; once money goes into it, it never comes out of it. Do whatever it takes to use your saving account after all other possibilities have been exhausted…and I do mean all.
- Pay Themselves First: We’ve heard this advice from many financial gurus, perhaps because it is so true. By paying ourselves first (i.e. sending money into our ‘for keeps’ account before paying any of our bills) and then living off of what is left over, you might be surprised with how much extra money your savings account has at the end of the year.
- Set Aside Part of Each Small and Big Financial Windfall: Our yearly income is (hopefully) predictable. But each of us receives small and big “windfalls” throughout the year. By windfall, I mean money that you did not expect nor budget away. A windfall could be a tax return, stimulus money, bonuses, birthday money, gift cards (you can sell these for money), class action lawsuit, sign-up bonuses for credit cards/bank accounts/etc., credit card rewards, etc. Superstar savers use a percentage (or all) of each windfall they receive—whether it is $50 or $3,000—and put it into their savings account.
- Play for Keeps: People who are saving superstars do not look at their paychecks as something to spend. They look at their paycheck as something to keep. Almost every financial decision made (and other decisions, for that matter) centers around the question: how do I spend the least amount of money while still obtaining what I need/desire so that I can keep the most amount of money for my savings?
- Save Automatically: There have been entire books written around the simple (and effective) strategy of automatic savings. People who automatically withdraw money from their paychecks and/or checking accounts to their savings account will save more money than people who manually put money into their savings account. With automation, the process is more painless, and happens without any human emotion involved. Take yourself out of the decision process all together, except for that critical first decision to automate your savings.
- Spend With an Eye to the Future: Superstar savers realize that spending money wisely can save them money in the future, and they capitalize on this wisdom. What do I mean by this? Everyone needs to purchase food, products, etc. Instead of just focusing on satiating the need/desire that you have at the moment of the purchase, think about how your purchase can satiate future needs and desires. For example, purchase a sound car (for cash and used is best) that will last you 10+ years, purchase classy clothing instead of trendy clothing so that you can still wear it several years from now, “invest” in quality items for the items that will get used the most during your lifetime, purchase food and ingredients that you can use to double up on and freeze for a future meal, etc.
- Adjust, Not Give Up, When Life Circumstances Change: People have babies, get married, purchase homes, accept jobs, get laid off, etc. Each of these life changing events leads to an increase or a decrease in your available funds. Effective savers adjust their finances accordingly, and don’t just give up on saving money. This may mean a temporary hold on saving money or decreasing your amount saved each month, but always with a plan for when you can begin again. If you are bleeding money, this also means mitigating the amount of money you need to take out of your savings account in order to preserve as much as you can.
Save Beyond Your Means Series:
Save Beyond Your Means Series Introduction
From a Pile of Debt to Net Worth Part I
From a Pile of Debt to Net Worth Part II
From a Pile of Debt to Net Worth Part III
Give Your Money a Purpose
A Sobering Reality: Where Did All of My Money Go?