Bucks: To the People Who Haven’t Saved Anything Yet

Carl Richards

Carl Richards is a certified financial planner in Park City, Utah. His sketches are archived here on the Bucks blog and on his personal Web site, BehaviorGap.com.

We often hear about the importance of starting to save early. Usually the examples are focused on saving whatever you can when you’re in your 20s to take advantage of the power of compound interest.

But what if you were too busy trying to pay a student loan and other bills in your 20s, or like many of us, had to use all the savings you built up to get through the last few years? Now you find yourself closing in on 40 and feeling like you missed the boat.

I’ve thought about this problem ever since I read about the recent study that found that nearly half of Americans wouldn’t be able to come up with $2,000 in 30 days if they needed it. This reality hits home every time I have a conversation with people 35 to 45 who feel so far behind the savings game that they aren’t sure what to do.

For that group the advice is no longer start early, but simply start now. The only thing that matters at this point is that the longer you wait, the more painful it will be. Compound interest can still work, but not until you start saving.

When we get behind on our savings goals, we start to feel more pressure to make up for lost time. That pressure can often lead to spending hours looking for that home-run investment. It’s a bit like a gambler doubling down to dig out of a hole.

I’ve also noticed that as we get “smarter” we start to overthink things and ignore the simple advice about spending less than you earn, saving for a rainy day and avoiding larger losses. The basics seem like kids’ stuff. So we spend hours talking about saving and investing, but we never get started.

If you’ve found yourself in a financial situation that was less flush than what you planned, it’s time to make some changes. Here are few ideas to help you get started:

Review: Don’t spend too much time dwelling on the past, but it can be really helpful to take a step back and look for patterns that have been harmful. This has to be done in a “no shame, no blame” sort of way. Give yourself permission to use the past as a springboard, not a bully club.

Give up on finding the home-run investment: Maybe it’s un-American, but finding the next Apple is highly unlikely no matter how hard you work at it. Not impossible, just highly improbable. So instead just start saving! Certificates of deposit are fine. Broadly diversified mutual funds work as well. The point is to start.

Make a plan: It‘s eye opening to put a number on all your financial goals. Have you looked at how much it will cost to put a child through college, for example? Any good plan will start with a clear understanding of where you are today and end with a where you want to go. Now you need to calculate the cost of getting there.

Remember that your plan is worthless unless you make the ongoing course corrections required when you’re either off course or the destination changes. Plans are full of guesses, but when done correctly, the ongoing process of planning can provide the context for you to make decisions in the future. It’s a lot easier to say no to the new car, if you are saying yes to a more important goal.

Maybe you have other ideas, but the point is to stop beating yourself up over what you didn’t do in your 20s and start focusing on making today count.

So what have you done to get over the hump and make a plan for your future?

Article source: http://feeds.nytimes.com/click.phdo?i=eeabe686340b21efe823368bcbfdd7ea