Life Savings

What are the best habits to create and sustain healthy saving behaviors? I’ve worked with lots of clients and seen various strategies that range from stellar, to creative, to works in progress.

From these experiences, here’s my list of the most effective habits of successful savers. Few of us do them all, but you can successfully manage your spending and generate the savings you want by doing many of these:

1. Pay yourself first.

The most effective way to save money is to do it before you spend it. Sounds obvious, I know. Payroll deductions are best as they’re effortless and invisible. When you divert money from your paycheck to your savings, you are paying yourself first. The money never finds its way into your checking account; you don’t see it and you don’t spend it.

2. Track your spending.

Develop a good sense of your overall monthly spending. You don’t need to track every penny every day but you should know how much you’re spending and whether you’re roughly hitting your spending and saving target. If it helps, use an app like Also, distinguish between discretionary and mandatory spending and if it is discretionary, think twice.

3. Pause before spending.

Similarly, hit the pause button before you buy anything consequential, especially discretionary items. Be mindful of your spending and make sure you really want to do so. A pause retains the option of spending the money later.

4. Live within your means.

Spend below your income at every stage of life. If your income is reduced — and you don’t expect it to be a short-lived change — then reduce your spending also. Don’t count on the future to be better; instead, adjust to the present. Similarly, don’t let your spending increase proportionally with increases in your income.

5. Minimize debts.

Limit your debts to a car, a home, your education, and true emergencies. Avoid taking on debt for other expenses. Anything else — vacations, furniture, weddings, taxes, living expenses — should be paid in full.

6. Actively manage your debts.

Generally, pay off the highest interest rate debt first. Student loans usually take priority because they will get you into the most trouble. And, if you already have some emergency savings, it usually makes more sense to pay down your debts as quickly as possible, rather than also saving money in a low yield savings account.

7. Socialize over-spending concerns.

Social pressure to spend can be intense — for both young and old. Try socializing your concerns with friends and family and you may find that not only do you get support but they may be relieved that you are brave enough to say something as they may be feeling the same pressures.

8. Use mental accounting buckets.

Remember the Christmas Clubs and lay-away plans of a bygone era? These were great examples of mental accounting. Create bank sub-accounts for your spending categories for which you need to save — e.g., down payment, car, vacation, Christmas presents, furniture, quarterly tax payments, etc. If you can, do payroll deductions (see #1) to fund these accounts. If not, do automatic debits from your checking account the day after each paycheck is deposited. Just like a lay-away plan, spend the money after you’ve saved it.

9. Take advantage of your employer’s incentives.

Your employer may offer you incentives to save such as a 401K match, a contribution to a health savings account, or an employee stock purchase plan where you can buy company stock at a discount. These are all free money and you should take maximum advantage of these.

10. Take advantage of tax incentives.

Similarly, the IRS offers various tax incentives to save. These include the obvious 401K and IRA retirement accounts but also other options such 529 accounts for college savings, health savings accounts for high deductible health plans, and Roth IRA conversions (which can make sense if your income is temporarily low). Take all the IRS offers.

Effective saving strategies are much like other good habits you develop — eating, sleeping, exercise, etc. — lots of small changes over long periods that add up to make a big difference.

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