Mini-lesson #3: The ONLY savings strategy that works

In the last year, what percentage of your after-tax income did you save?

Ten percent? Fifteen? Nothing?

There are people out there that will tell you need to save 20%, 35%, or even half of your income, which is crap. It’s not crap because it’s impossible (plenty do, though it obviously becomes easier the more you earn). It is crap because: how much you should save depends on your situation and your goals, not an arbitrary percentage. So what you need to do is:

  • Figure out what you’re saving for.
  • Calculate how much you need (and what you can afford to save).
  • Pay yourself first.


You’ve probably heard this before, but the biggest thing you can do for your financial security is start an emergency fund. So my one recommendation would be to save up some cash to live on in case you need to shell out big bucks to fix your car or, God forbid, you lose your income.

But beyond that, what do you want to do with your money? Do you want to:

  • Travel?
  • Buy a new car?
  • Put a down payment on a home?
  • Learn how to fly?
  • Quit your job?


This depends, of course, on what you’re saving for and how soon you want to get there. You may find that—on your current income—you can’t swing saving $50k for a house in just two years. However, it’s far better to define where you want to go first, and figure out how to get there second rather than limiting your dreams based upon your current means.


The last step is the most important. Resisting the daily urge to spend money is akin to losing weight or quitting smoking. It’s damned hard, and willpower is not enough. We tell ourselves we can change, but we often don’t. That’s why it is absolutely critical to make saving automatic and pay yourself first. Here’s how it works:

1. Open a separate savings account that’s out of sight, out of mind. After you’ve determined how much you need to save (and that you can afford it), you need to open a savings account that’s in a separate bank than your everyday checking account. Online savings accounts are great for this; you can transfer money in and out online in two days and they pay better interest rates. I recommend FNBO Direct. It’s FDIC-insured and has no fees and no minimums to open.

2. Automatically contribute every payday. Once you have that account set up, set up an automatic transfer into the new savings account every payday (or, even better, split your direct deposit between the two accounts).

Do you want to start saving more money and reaching your goals faster? Then take 15 minutes to set up automatic savings right now. It could be the smartest financial thing you ever do.