10 Basic Steps

7 Save for your future in 10 basic steps
Save for Your Future

Pay Yourself First

Saving money is not easy, but it's essential to achieving financial well-being and securing your future. One of the best and easiest ways to save money and start a strong retirement income planning program is to pay yourself first. Every time you receive a paycheck, save a certain percentage of your income before spending money on anything else. You may choose to have your bank automatically deduct a certain amount of money from your account each month. This way, the money never hits your pocket, so you won't miss it.

Other ways to make saving money easier include putting away raises, bonuses, and refunds. You also may want to review Know Where You Money Goes and Shop Smarter for money-saving tips.

The Time Value of Money

The most important tip to remember is the earlier you start saving and begin retirement income planning, the better. No matter where you are in life, begin saving today and you'll be that much further ahead tomorrow. When you put money into a savings account or investment vehicle, the amount you originally save is called the principal. The principal amount earns interest, which then is added to the original principal. This amount then earns interest, and so on. This process is called compounding. Use this retirement financial calculator to help you make the best decision. Here is an example of how compound interest works in your favor:


Person A's IRA

Person B's IRA

Interest Rate



Number of years contributions
were made

9 years
(age 22 to age 31)

34 years
(age 31 to age 65)

Amount contributed

$1,000 per year
For 9 years = $9,000

$1,000 per year
For 34 years = 34,000

Value of IRA at age 65

$13,021 at age 31;
this lump sum then compounds:
At Age 65 Equals: $243,863

At age 65 Equals: $196,982

Saving Versus Investing

You should think about the money you save as falling into three categories: money for an emergency fund, money for short-term purchases, and money for long-term goals. Money for an emergency fund and short-term purchases should be kept in an easily accessible savings or money market account. You may also consider keeping this money in a Certificate of Deposit (CD), which may earn more interest than a savings or money market account. With CDs, you're required to leave the money there for a certain period of time; with money market deposit accounts, you typically must maintain a high minimum balance. Money for long-term goals can be invested in assets such as stocks, bonds, or mutual funds. These assets possess more risk than traditional saving vehicles, but they have the potential to earn more. For more information on investing, see Invest Money to Reach Your Goals.

Saving for an Emergency

The first savings goal you should establish is setting aside enough money to cover your basic living expenses for three to six months. This money should be kept in an easily accessible savings or money market account, not in a long-term investment asset. Only use the money in the event of an emergency, such as receiving unexpected medical bills or losing your job.

To calculate how much you'll need to save for your emergency fund, download the Emergency Fund Worksheet.

Once you've established an emergency fund, you can begin saving money to reach other goals, such as buying a new car, funding your child's education, or establishing a retirement fund. To learn how to set and achieve financial goals, move on to the next financial step

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