If you adopt the habits of financially fit consumers – checking your credit report, analyzing your budget, setting goals and managing debt, chances are you're going to find you have money left over at the end of each month.
That, after all, is the objective. So, what does the financially fit consumer do with that left over money?
Paul Golden, spokesman for the National Endowment for Financial Education, says it's important to understand the difference between saving and investing. Interest rate changes, inflation and economic turbulence are factors to be considered.
“Talk to a Certified Financial Planner, who can make investment recommendations based on your specific life and financial situation,” Golden told ConsumerAffairs. “Interview several candidates before selecting a financial advisor and make sure you know how he or she is paid.”
Golden says some financial planners work for flat fees, while others take a percentage of your portfolio or earn a commission for selling certain products.
Sometimes it's hard to get started
That's very much in Michelle Perry Higgins' wheelhouse. Higgins is Principal and Financial Planner of California Financial Advisors, in San Ramon, Calif. She often hears consumers say it's hard to save because they live paycheck-to-paycheck. In that case, she advises to start small.
“I call it the 1% rule, she said. “Start saving 1% of your income into your employer retirement plan and 1% into your emergency reserve. Then, try to increase each bucket another percent every year.”
To prevent backsliding, she recommends making savings to these accounts a non-discretionary systematic withdrawal.
“Beginning is always the hardest part and the 1% savings is typically not missed and easily achievable for families on a tight budget,” Higgens said.
Pay yourself first
Diane Moogalian, Vice President, Customer Care, Equifax, agrees with that approach. She suggests consumers pay themselves first.
“It’s a simple concept, but with today’s life conveniences at our fingertips, it’s one that’s often overlooked,” Moogalian said. “Think about how much some of the little things we like to call 'coffee and conveniences' may add up – a daily cup of coffee that you pay for may add up. Make sure that you pay yourself first and contribute to your savings account.”
Bruce McClary, Vice-president of Communications for the National Foundation for Credit Counseling, also recommends starting small with a savings program, saying the goal has to be reasonable.
“Sometimes that means starting very small, like setting aside all the spare change you get in a month,” McClary said. “At the end of the month, count it and calculate a 10% increase for the next month. That becomes your new savings goal in the month ahead.”
At the same time, he says consumers should be looking for ways to trim their budget here and there.
“For motivation, create a reward for reaching a milestone after six months or a year,” he said. “Treat yourself with a portion of what you saved, but be sure to leave most of it alone so it can continue to grow over time.”
Once you become a financially-fit consumer, McClary says you'll be surprised at how much you will be able to put into savings each month. Setting aside 20% or more of income, he says, is not unusual.