How to Start Saving (and Stay Motivated to Keep Saving!)

Learn how to put money away each month without even thinking about it.

Posted on | By Ric Edelman
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The First Steps Toward Financial Freedom (4:08)

You know you need to save for retirement, but it’s not always easy. Even those free of debt find it difficult to save. Many people spend all their money each month, and they can’t (or won’t) change their spending habits. If that describes you, the following strategies can help.

Pay Yourself First

Perhaps your life is governed by two immutable facts. Fact: You spend all your money every month, leaving you with nothing left to save. Fact: You can’t change the first fact.

So, let’s make a subtle change in how you pay your bills. Currently your paycheck gets deposited directly into your checking account, and then you start writing checks. If you’re like most people, you pay the rent or mortgage first, then car payments and other loans, followed by your cell phone bill and utilities. You save the credit cards (if any) for last, because the amount you pay them is directly related to how much you have left after you’ve paid your other bills.

So you send minimal amounts to each credit card company, and by the time you’re done, your checkbook balance is at or near zero. And while you promised yourself that you’d save some money this month (as you promise yourself every month), you now discover (as always) that there’s nothing left to save. In fact, you barely had enough to pay the bills themselves.

Without realizing it, you are treating yourself as a creditor — albeit a benign creditor. You want to pay this person named Yourself, but you know you’ll never get hassled by Yourself, so it’s okay to miss a few payments — or even ignore Yourself altogether.

Thus you pay Yourself last each month, which all too often translates into not paying Yourself at all.

To fix this, you must pay Yourself first — before you pay any other bills.

So, here’s my challenge to you. For one year, I want you to write Yourself a check before you pay any other bills. This way you can be certain that you will have paid Yourself before you run out of money.

Aim to save 10% of what you make per year. Here’s a simple trick:

  • Take your yearly income — let’s say it’s $50,000
  • Drop the last zero: $5,000
  • Divide by 12: $416

This is the amount you write on the check. Each month put that $416 (or whatever amount you calculated based on your income) into a savings account, mutual fund, or exchange-traded fund. That’s it. Now you can pay the rest of your bills as you normally would. And if you’re concerned you will run out of money, don’t fret because you’re going to run out of money anyway (you always do, right?). At least this way, you’ll never run out of money until after you’ve paid Yourself first. And that’s the point.

Article written by Ric Edelman
Chairman and CEO, Edelman Financial Services,