Today’s the third episode of my “Back to Basics” series that is about being brilliant at the basics or core principles of finance. Last time, I covered cash flow management. Before that, the Thrift Savings Plan, and today, I’m going over a critical topic: saving your money. People say, “Money can’t buy you happiness.” That one is crazy because renting a yacht for two weeks to eat, drink and be merry with the people I love would bring me absolute joy. There are a lot of sayings, but what they all come down to is that life is hard when you need money and don’t have it. It can be for simple things like needing a new suit for an interview, money to fly home to family for the holidays, a safe home, food, or medical treatments. Having money saved up gives you the freedom and peace to solve your needs, wants and problems quickly.
Saving money is also key to achieving financial stability, reaching your goals, and reducing stress.
In this episode, I’m going over:
- Why it’s important to save money
- Compound interest
- Strategies to save money
- Getting the time and your savings aligned
- Best accounts to save money
- Savings mistakes to avoid
- Maximizing your savings
Why You Should Save Money
Saving money is essential for several reasons. First and foremost, it provides a safety net for unexpected expenses like medical emergencies, car repairs, or a military spouse’s job loss. Without savings, you might be tempted to use high-interest debt, like a credit card to cover those costs, which can quickly spiral out of control. The second and my favorite is opportunities. Saving money allows you to take advantage of opportunities you’re given, whether it’s buying a home or car that’s an amazing deal, or a dream vacation. Savings give you the financial flexibility to go after your goals without the immense stress of living paycheck to paycheck. Most importantly, savings can reduce financial stress and provide peace of mind, freeing up your mental bandwidth for other things like your health and family. Knowing you have a financial cushion can make you feel more secure and excited about the future. The last reason why it’s important for you to save money is because at some point, you won’t be able to work and earn money or you’ll get to a point when you don’t want to. Either way, you need to set aside some of what you make now to support your future self. Think about when you’re 80 and the quality of life you want, what you save now, is how that will be funded. That is your long-term savings, which I’ll get into in a minute.Understanding Compound Interest
This may be a refresher for some, but I want to touch on compound Interest. Compound interest is when you earn interest on both the money you save and the interest it earns. For example, if you save $100 and earn 10% interest for the year, you’ll have $110. Next year, you earn 10% on $110, getting $121. Compounding interest helps the initial money you save make money over time. So, no matter the amount you’re saving, compound interest helps you save more.Setting Up Different Savings Buckets
All of your savings should not be in one big pile. That would be a mess. Instead, you want to have different buckets for your savings. Buckets is one way to describe them; others use envelopes or baskets to describe different containers. I’m trying to get everyone to start using money cauldrons. Just kidding. The point is, you can call them that if you want. It’s more about you earmarking your money for your savings goals. Some savings cauldrons could be for an emergency fund, vacation, new car, college, or early retirement. It is wise to keep separate savings accounts to avoid dipping into one goal to fund another. The Importance of Emergency Funds Your emergency fund is the most crucial bucket to set up and fund. The world says to save three to six months of your monthly living expenses, but I say you should just have money in there. Yes, six months of your living expenses in a savings account would be ideal, but you have to start somewhere, so $50 is a great goal to start with. The money in your emergency fund is for unexpected and important expenses you need to pay. An unexpected invitation to go to the beach for the weekend is not an emergency. You want to have money on hand for emergencies like ER visits, job loss, or an emergency trip to see an ill family member.How to Save Money
Wrapping your mind around why it’s important to save money 1. Pay Yourself First Treat your savings like a bill that needs to be paid to yourself, when you receive your income, set aside a portion for savings before spending on anything else. It’s your financial self-care. 2. Automate Your Savings Set up automatic transfers to your savings account. This way, you won’t be tempted to spend the money instead, and you won’t forget. 3. Cut Unnecessary Expenses Review your spending and identify areas where you can cut back. This could be dining out less often, canceling unused subscriptions, or not buying that new skin in Fortnite. 4. Set Clear Goals Define what you’re saving for. Whether it’s an emergency fund, a new car, or a vacation, having a clear goal can motivate you to save with a vengeance. 5. Track Your Spending Keep a close eye on your expenses to ensure you’re sticking to your savings plan. If you’re into leveraging technology, many apps can help you track your spending and savings. Or you can use pencil and paper.Time Horizon and Savings
Understanding your timing is key to effective saving. The industry jargon used for timing is called time horizon. Your time horizon is the amount of time you have before you need to use the money you’re saving. There are short, medium, and long time horizons. I’ll tell you more about each and where to save based on your timing, but then I’ll give more details about where to save.Short-Term Savings
These are goals you plan to achieve within the next few years. First and foremost would be your emergency fund. Then there are things like saving for a vacation or Christmas. For short-term goals, you’ll want to keep your money in an account with liquidity, which means you can get it in cash quickly without losing value. Examples would be a savings account or a money market account.Medium-Term Savings
These goals are one to five years away, like saving for a car, wedding, or home down payment. Or, for some, a trip to Disney. CDs and money market accounts might be good for these savings buckets.Long-Term Savings
These goals are more than five years away, like retirement or buying a house. For long-term savings, you might consider higher-yielding options like CDs (Certificates of Deposit) or investment accounts like your Thrift Savings account or an Individual Retirement Account.Where to Save Money
Choosing the right place to save money is crucial for maximizing your savings. I like to think of them as steps on a staircase. The first step is always cash or a checking account to pay your monthly bills. After that step comes the different levels of savings.Savings Accounts
Ideal for short-term savings and emergency funds. Look for accounts with competitive interest rates and no monthly fees.High-Yield Savings Accounts
These offer higher interest rates than regular savings accounts, helping your money grow faster. We’ll dive deeper into these shortly.Certificates of Deposit (CDs)
Suitable for long-term savings if you don’t need immediate access to your funds. CDs usually offer higher interest rates in exchange for keeping your money locked up for a set period.Money Market Accounts
These accounts often offer higher interest rates than regular savings accounts and come with check-writing privileges. They’re a good option for both short-term and long-term savings. Investment AccountsEmployer-Sponsored Savings Plans
These accounts are going to be for when you’re over 59 and a half. And are long-term goals. You’ll be investing in stocks, bonds, or mutual funds. While these come with higher risks, they also offer the potential for higher returns. These are accounts like the Thrift Savings Plan, 401ks, or 457 plans.Common Savings Mistakes
Even with the best intentions, it’s easy to make mistakes when saving money. Here are some common mistakes to avoid:- Not Having a Specific Goal—Without a clear goal, it’s easy to lose motivation and dip into savings.
- Keeping All Savings in One Place – Diversify your savings to take advantage of different interest rates and accessibility.
- Ignoring Small Expenses – Small, frequent purchases can add up over time. Be mindful of your spending habits.
- Not Reviewing Your Savings Plan—Life changes, and so should your savings plan. Review and adjust your strategy regularly as needed.
- Procrastinating on Saving – The sooner you start saving, the more time your money has to grow. Don’t wait to start building your savings.
- Trying to Keep Up with Others—It’s easy to get off track when you’re watching what everyone else is doing. Instead, stay focused on your spending and savings so you can reach your goals.
High-Yield Savings Accounts
High-yield savings accounts are a great option for maximizing your savings. They offer significantly higher interest rates than traditional savings accounts, helping your money grow faster while keeping it more liquid. When you’re comparing high-yield savings accounts, consider these things:Interest Rates
Look for accounts with competitive rates. Even a small difference in interest rates can make a big impact over time.Fees
Ensure there are no monthly maintenance fees that could eat into your savings.Minimum Balance Requirements
Some high-yield accounts require a minimum balance to earn the high interest rate. Make sure you can meet these requirements.Accessibility
Consider how easy it is to access your money when you need it. Some accounts may limit the number of withdrawals you can make each month. To compare high-yield savings accounts, you can use platforms like Bankrate, NerdWallet, and Forbes. I’ll include some links in the show notes.Saving on a Tight Budget
Most of us have had to save on a tight budget—or, if you’re a trust fund baby, what feels like a tight budget. A tight budget is the number one excuse people use for not saving. Even if you don’t have a lot of extra money lying around, it’s still possible.Small Savings Strategies
- Use a budget to stay on track
- Save loose change (it adds up)
- Increase savings when you have a windfall or promotion
- Use cash-back apps like Rakuten
- Use apps to get rewards like McDonalds or Chick-fil-A
- Ask for a military discount when you have to spend
- Use free military programs
Frugal Living Tips
- Cooking at home
- Fix it yourself (YouTube)
- Buy second-hand or used instead of new
- Trade or barter for things you need
- Using public transportation or resources like the library
Final Thoughts on Saving Money
Keep your money mindset right. Don’t tell yourself you can’t save money or you don’t have enough to save. That is a lie you keep telling yourself to the point you’ve started to believe it. You can absolutely save money. You just have to make it a priority in your life. If you’ve tried to save money in the past and feel like it didn’t work out, that is why you’re not saving money. Do it again. The more times you try something and fail, the more likely you will succeed. Each time you miss a savings goal, you will learn something, you will make better decisions and each time, it will get easier. So just because you don’t have a million dollars in the bank the first time out, that doesn’t mean it’s a failure, or you won’t get there eventually. This leads me to my next point. Don’t say on Monday that you’re going to start saving and then on Sunday, say it’s not working out. Saving money, whether short-term or long-term, takes time. Rome was not built in a day, and neither will your savings. Be realistic, patient and stay the course. It will come with time. To conquer, you must be consistent. Save money every week or month. If you want your savings to get bigger, you have to do the reps. Setting up automatic payments is a great way to keep yourself consistent over a long period of time. Your savings doesn’t have to be fancy or complex. Just consistent. My last point is to be self-aware of where you go off the rails with money and adjust accordingly. If you know you can’t walk into Costco without buying enough to sustain your family through two apocalypses, you should order online and pick up your order. Or if you know you can’t say no to your teenagers at an Outlet Mall, don’t go with them to the Under Armour Outlet (I’m not speaking from experience there). Send them with the money you have budgeted for instead. The point is if you want to keep your savings on track, know your weaknesses when saving money and have a plan to help yourself when you get weak. Because we all do. No one is perfect when it comes to money, and no one is immune to making money mistakes every so often.Recapping Save Money Smarter
Now for the wrap-up. It’s never too late to start saving money. Remember, saving is critical to financial success, providing you and your family with security, flexibility, and peace of mind. By understanding and applying the basics of savings, you can build a strong financial foundation, reach your goals, and have some fun! If you want to explore saving more deeply, I have some articles that I’ll link to in the show notes. Thank you to Navy Federal for providing support to the MILMO Show. You can also head over to milmo.co to get all of the resources and links from this episode, and while you’re there, be sure to sign up for the MILMO Memo newsletter to get all my updates. If you found this show helpful, please subscribe and share, please and thank you! I appreciate you listening. I’ll talk to you next week. Related episode: Next Level Finance: College Saving and Mortgage PayoffSave Money Smarter Resources
- Back to Basics Series Part 1- Thrift Savings Plan Basics for Service Members
- Part 2- Back to the Basics: Managing Cash Flow
- Saving for Retirement with IRAs
- Why Military Families Should Use 529 College Savings Plan
- Bankrate High Yield Savings comparison
- Nerdwallet
- Forbes
