At the foundation of any planning conversation is saving and saving automation can help make that easier and promote good money habits. Those that start saving early and do it throughout their entire working days are setting themselves up for a life without being employed. If you want to work until you pass away you almost can but I sure don’t. In this article I will share the best savings techniques I’ve seen and how the millionaires I work with got to where they are. Surprise, it’s not because they picked the next Apple.

Although you can swing for the fence and be the next Barry Bonds with a great stock pick, you could also be the next Clint Hartung and make the wrong pick and lose it all. To us, risk is worth taking at the right times and with the right amount. But those that stay wealthy develop strong habits early. There’s a reason that over 60% of NFL and NBA players are bankrupt or under financial stress within 5 years of leaving their sport. Making a lot of money doesn’t necessarily correlate with long term wealth. So what should you be doing now for it to be habitual? 

Here is my trick to saving: Automation

Trick one is automating your savings. There is a reason why people’s biggest investments are their home and then their 401k. Take your income and give yourself a goal. If you make less than $100,000 try to save 15%. If you make more than $100,000 save 20%-30%. Then whatever is left over is your spending for expenses. The formula is not Income-Expense=Savings. Most companies allow you to automatically take money out of your paycheck (go into your payroll system) and have it go into an investment account that is set up to automatically invest for you. If you have to invest it yourself then you’re creating a step for yourself and therefore creating an obstacle which is what makes automating your savings so valuable.

Once you’ve established how much you save then it’s a matter of where to save. The younger you’re the better it is to save in a Roth IRA and a regular brokerage account. But any savings vehicle is great! If you’re fortunate enough to have an employer that gives you a 401(k) match, meaning they will give you free money to participate in the 401(k) plan then max that out.

If you have a family, make sure you have a minimum of 3 months of expenses in cash saved to support everyone if you lose your job. If you’re the primary breadwinner then have 6 months saved. After you have that saved in a savings account, then look to contribute to your 401(k). In 2020 you can save up to $19,500 if you’re under the age of 50 and $26,500 if you’re older than 50. If you’re in a lower tax bracket, look to save in a Roth 401(k) as this money will grow tax free (read Investing 101). If you’re looking to have a diverse group of accounts you can put half into your Traditional 401(k) and half into your Roth 401(k) as this will prepare you for whatever the tax situation may be in the future.

I like maxing out my 401(k) then anything extra goes to a joint account that is invested in stocks and ETFs. Whatever the savings vehicle, especially when you’re young will do amazing things for you. The main reason why we like the Roth 401(k) over the other accounts is because you won’t be tempted to use it, it grows tax free, and with good investments you can hopefully stop working sooner. 

Don’t let the politics or the status of the global economy get in the way of savings. It doesn’t matter where the world is when you automate your savings. All that matters is that you’re dollar cost averaging over time (lowering the overall cost basis of your investment) regardless of where the markets are. If they’re high don’t try to time the market. If they’re low then try to adjust your spending down and increase your savings during that time as you’re getting great discounts that only present themselves a couple of times per year on average.

To review, saving as much as possible early is made possible through automation. Accumulating good debt (student loan, mortgage, starting a business, etc) is fine but stay away from erosive debt (credit card, expensive cars, etc). Automate your savings and investments. Income-savings=expenses.