I am often asked about tips on financial wellness and how to best save money. Saving is hard—and it can often feel overwhelming, and even unnatural. However, becoming a great saver is an important step on the road to financial wellness and a healthier, more stable life.
There are two key traits that all legendary savers share: they save FIRST and they save AUTOMATICALLY.
Very few would-be savers, including myself, are successful just “trying to spend less money” and seeing where they end up at the end of each month. The best savers I know set aside money at the beginning of the month or pay period, not at the end. Whenever possible, they also automate their savings contributions.
Now let’s dig a little deeper. Here are a few important tips for saving and how United can help:
1. Take advantage of pre-tax savings to maximize your money.
When you set money aside before taxes, the power of compounding interest is even more noticeable, increasing your savings at a faster pace without extra strain on your bottom line. To improve your own savings, it’s important to take full advantage of this.
To illustrate this concept, let's say you pay 22% in taxes. If you were to set aside $100 a month before taxes for 20 years with a 10% return, this amount will grow to $76,670.
Considering the 22% tax rate, the same $100 would dwindle to just $78 after taxes that you could invest at the same 10%, yielding only $59,802 after 20 years. That's an extra $16,867 you're leaving on the table! While you will often pay tax on the saved money when it comes out of the pre-tax program, you’ll still end up miles ahead of the after-tax saver.
2. Maximize company match programs.
You’ll see an even bigger impact to your savings if your employer contributes to your pre-tax savings, and your company’s 401(k) plan is a great place to start. While not every company offers a matching program, I recommend reaching out to your HR department to learn about your options. If you’re lucky enough to have any sort of employer match on your 401(k) contributions, maxing out those contributions will maximize your savings potential.
For example, at United, we match our employees’ contributions to their retirement savings account up to 5% of their salary. Back to our savings example—if you were to set aside $100 pre-tax dollars per month and received the company match for another $100 dollars per month, with the same assumptions above, this grows to $153,339 in 20 years, much higher than the $76,670 you'd achieve without the company match.
On top of all of that, 401(k) contributions are set in advance and automatically help you save pre-tax dollars, checking all the boxes for savvy savers!
3. Health Savings Accounts: Another Potential Company Match Program
Another great opportunity to take advantage of, if your company offers it, is a Health Savings Account, or HSA. The money that you set aside in an HSA can be spent on healthcare costs and will carry over from year to year—potentially creating a lifetime savings account for your healthcare costs.
HSAs also automatically help you save pre-taxes and, depending on your employer’s benefits program, could come with contribution matching on your company’s dime. This makes them a great option for most savers.
The best savers save first, save automatically, and maximize their opportunity to do so with pre-tax dollars and company matches. If you want to learn more about maximizing your savings and improving your financial health, our local bankers are here to help.