How to Start Saving 10% for Retirement Without Psyching Yourself Out

Start saving 10 percent of your income now

Saving 10% of Your Income

The most-fundamental question in personal financial management is not “where should I invest?” But rather, “how much do I need to save to reach my financial goals?” The amount of money you save provides the foundation for nearly every financial decision, from what type of house you can afford to whether you will outlive your money in retirement.

While the actual amount you need in savings to cover emergencies, retirement income spending, and other purchases in between is a highly personal calculation, many professional advisors agree that saving 10% of your income (gross) is a great place to start.

Many people say “but I can’t save anything,” and it certainly seems true, given that the majority of Americans would struggle to pay for an unexpected $1,000 expense. With some awareness and a well-conceived plan, however, even families in the most difficult situations can begin to get their savings and investing on track. Here are some tips to help you to get started.

Commit, But Don’t Over Do it (at First)

You or someone you know has surely resolved to lose weight at some point in the past. The typical approach to this resolution is to promise to cut out sugary foods immediately, to begin to exercise five days a week, and to be the pinnacle of health by next year’s high school reunion.

What typically happens in these cases? The dieter cannot maintain the eating or the exercise plan, feels frustrated that he or she is not seeing results quickly enough, and gives up, only to return to his or her previous routine, or sometimes even worse.

Financial behavior changes work the same way. Committing to stop eating out, to clip coupons religiously, and not to take a vacation until you have paid off your car and house all at the same time can be very difficult to maintain, and can actually make you worse off in the long run. Setting an overall goal (e.g., “I will be saving 10% of my income by one year from now”) and then committing to take smaller steps along the way can make your goal easier to achieve and ultimately more sustainable over time. Examples of smaller steps can include:

1) Bringing your lunch 1-2 days a week and putting the money you’ve saved into a savings or investment account (estimated savings of up to $1,040 per year, based on two $10 lunches each week of the year).

2) When going out to a restaurant, not ordering a drink before dinner (estimated savings of up to $600 per year, based on one $11 drink each week of the year).

3) Planning your meals for 3-4 days before going to the grocery store to reduce food waste (estimated savings of up to $2275 per year for a family of four).

If You Don’t See it, You Won’t Spend It

It’s natural to feel “rich” in the days after you receive your paycheck. Seeing a larger bank balance generally makes people feel less constrained and able to spend more, which can end up costing us all in the long run. The best solution to this habit is to move some of your income out of your checking account before you even see it.

If your employer offers direct deposit for your paychecks, set it up so you are diverting a portion of your net pay directly into a savings account, instead of depositing everything into your checking account. By depositing even a small amount into savings automatically, you can reduce the effects of this behavior and retrain yourself to spend more wisely throughout the month.

Let Your Employer Do Some of the Work

Many employers offer 401k plans or other retirement vehicles where they match a portion of your contributions. Participating in these plans as an employee is the easiest way to increase your savings rate. If your employer has a 3% match on contributions to your retirement plan, for example, then you only need to save 7% more to reach the goal! When you factor in the tax benefit of contributing to your 401k plan, you are effectively saving even more. Nice work!

Save More Tomorrow

Starting to save money today can feel like a challenge, because often it means giving up things that you enjoy buying or doing, which feels like a sacrifice. Committing to save a portion of future income (e.g., raises, bonuses, or overtime) instead of spending them, however, is much easier to stomach. By committing to save a greater portion of your future earnings, you can actually increase your savings rate dramatically over time, without even realizing it.

Conduct a Subscription and Contract Audit

Are you getting full value out of that magazine subscription? What about your gym membership? Nearly everyone has services they signed up for in the past but no longer use, which can sabotage your savings efforts. Review your subscriptions to see if you’re getting the most you can out of them. If you’re not, cancel and put the money into your bank account instead.

Similarly, review your phone, utility, internet, and other contracts. Companies in these areas change their prices often and sometimes offer enticing deals to get you to switch providers. Take a look to see if you can pay less by taking your business elsewhere.

Pick Your Priorities

Saving money doesn’t mean sacrificing everything that you like to do. No one who wants to save can stick to a budget that leaves no room for an occasional night out or splurge purchase. It’s important, however, to keep an eye on how many of those splurge items and experiences you tackle at once.

Settling on some favorite things or activities is a great way to bring your spending under control. If you enjoy scuba diving, golf, and travel photography—all very expensive hobbies—spend some time thinking about which one gives you the most enjoyment and focus on that one. You’ll save some money in the process and probably enjoy yourself more too.

Stay Accountable to Meet Your Goals

While these ideas can help you to get started on the road to better saving and financial management, consulting with a professional financial advisor can help you stay accountable to your long-term goals and find additional ways to save as well. If you’re ready to get on track with your savings and investment goals, use our proposal request tool to find and connect with the right financial advisor for you.