Financial Learning Center


You work hard for your money, right?  And once you earn it, there are four places your money can go. You can spend it, save it, give it away or invest it.

Savings are critical to long-term financial health – so here are some ideas that will enable you to think differently about the value of savings in your life.

First, put your money into context. Why should you save? A base of savings provides security (should things go wrong with your income), flexibility (you have the ability to choose what to do with your money, versus living paycheck to paycheck) and over time it becomes normal to have a cushion of money that you can grow through investments.

A different view to consider is this - every dollar you spend is part of the bigger picture of the economy.  It’s your spending, and the spending of people just like you that generates most of the value in the economy. Companies know this, and they make a huge effort to get your attention and pull in your dollars. So unless you have a specific strategy or plan (including a minimum savings number that you want to keep in your account), it’s all too easy for your ‘savings’ to become a new television, or a closet full of clothes you rarely wear!

The way many people manage their money is to have separate savings and checking accounts. Checking accounts are for your day-to-day spending, the money you need for your life to run: your food, clothes, transportation, rent or mortgage and maybe some entertainment.

Savings accounts can be used to hold what money is left over after you pay all your bills. Or better yet, create a transfer every month of a set amount into your savings account. Savings accounts are a great place to build up the money you don’t touch. Set a goal – say to have 3 – 6 months worth of living expenses in your savings account. Banks promote savings accounts as a safe place to save, and they are safe, but when interest rates are low, this money won’t grow much.  So once you exceed your savings goal, transfer the excess funds into an investment account where you have your money work harder for you.

A good rule of thumb for savings is the 20 / 50 / 30 rule. Every month transfer 20% of your income into a savings or investment account. 50% of your income stays in your checking account and goes towards necessities – housing, bills, education, transport, food etc. The last 30% also stays in your checking account and is for discretionary spending – clothing, entertainment, travel, charitable donations or gifts. When you get a raise, make sure your transfer reflects the new amount.

This idea of turning savings on it’s head, and making it a planned effort, as opposed to an afterthought, is a great way of driving savings.

Remember, your money is powerful. If you deposit your money in a bank, they can put your money to work and lend it so someone else. If they use it to give someone a cash advance on their credit card, your bank can earn 15% interest – or 15 cents on the dollar, from your savings. When interest rates are low, your bank pays you less than 1% - or a fraction of a penny! Your bank is making a lot of money off of your savings, so why shouldn’t you too? THIS is why it’s so important to learn about investing.

Getting smart about saving is a fundamental pillar in long-term financial success. You can change your financial future if you start to think beyond the bank and getting your money to work for you. And when you plan your savings, you’ll be able to protect yourself from emergencies, save for short-term goals and buy yourself options in the future.

It’s not how much money you earn, but how much you keep, which is the key to your financial success.

And the difference between those two numbers is how much you spend.

Consider the idea of conscious consumption, and how being more aware of why you spend can help you in the long term.

According to eMarketer, advertisers around the world spent over HALF A TRILLION dollars last year marketing their wares. A third of that – at 180 Billion is in the US. And of that, 36 companies, all of whom you will know well, spent over a billion dollars in advertising.  No wonder you want a new shiny car!

It’s not all advertising’s fault. Humans are hardwired to compare themselves to others. It helped us survive during much tougher times, when the weak ones of the tribe had to be left behind. This hardwiring manifests itself now into the syndrome known as keeping up with the Joneses.

In the words of Will Rogers:

Too many people spend money they haven’t earned to buy things they don’t want to impress people they don’t like.

Conventional wisdom says you should pause before you make a purchase. You should research the options, wait a few days and comparison shop. You CAN do all those things but… not a lot of people do it. If they did, the average balance for a household with credit card debt would not be $15,000 as it is now.

So how can you look at your spending differently? Here are 3 to start:

1.   Buy less stuff.

Remember, the advertisers of the world all have one goal: To make you buy their product. Then re-buy their product. And never buy their competitor’s products. The bigger question for you is, do you need to buy it at all?

With the blossoming of the sharing economy, you have to ask yourself why you need to own all these things. You can now share cars, homes, clothes, lawnmowers and tools. The sharing economy allows you the benefits of using something without the burden of buying it.

2.  Recycle

If you’re not up for buying less stuff or downsizing, the least you can do is recycle everything. Take pride in making things last, or exchanging them with family & friends for things that you need. The idea of “shop my closet” is a great one – where groups of friends can exchange items they no longer use.

Also try to buy things of quality that will last. Think of your purchases as assets that should last a long time. When you look at things this way, you reduce the number of things you throw away.

3.  Look to yourself

‘Keeping up with the Joneses’ is a fallacy. It’s extremely difficult to truly know another person’s financial situation – but it’s a STRONG possibility that it’s not the same as yours – no matter how much you think you have in common.  Take pride in living below your means, and understand that for every new car that appears in a neighbor’s driveway, it’s more than likely that there will be an extra bill that will appear too.

Remember, our spending habits are built up over a lifetime, and what may be normal to you, could be considered extraordinary by someone earning the same as you. Rethinking when, how often and why you buy what you do is a great first step to rewiring your spending habits. And best of all – every dollar that you don’t spend today is available to you to invest, so your future self will have more money, and more options, tomorrow.

The decisions that you make about how you spend your money every day can have a giant impact on your long-term financial success. Which is why conventional wisdom says that ‘everyone needs a budget.’

A budget can help you understand how money flows in and out of your household, set your goals and track your progress against them.

The four main reasons to set a budget are:

  1. To live within your means
  2. To get out of debt
  3. To have money to invest
  4. To pay for bigger things

There are so many free apps and browser based budgeting tools available – it’s well worth your time investigating how some of these could help provide some structure to the way that money flows through your household.

But not all households are the same, so here are different budget tools for different situations.

If you are sharing a home with roommates, or a family where you all contribute to bills then you might want to check out Buxfer. This site specializes in group budgeting and shared expenses between friends or roommates and tracks shared bills.

Couples should check out It is a simple, clean way for two people to set a budget together and track expenses.

For individuals there are many paid and free solutions. One that is very user friendly is Level Money. It helps you figure out how much is available for you to spend every month, and tracks it for you over time.

There are a few other noteworthy tools out there - like Mint, the most widely used budget tool, which can automatically categorize your expenses, and Moneystrands which allows you to link all of your accounts and create a 12 month spending plan.

To get started, try a free service first, and get to know whether this will work for you.

Many of the free tools mentioned are based on the ‘envelope system’ – a tried and true method from the days when cash was king. In this system, households have envelopes for different expenses: food, entertainment, phone, rent, savings, etc. And once the envelope is empty, you know you’ve reached your limit. For the technologically challenged or those who don’t like to share their data, physical envelopes are still a great solution.

But now with credit cards in our pockets, it’s a lot harder to face the reality of empty envelopes.

And the hard truth about all of this is that ‘a budget can tell you what you can’t afford, but can’t stop you from buying it anyway’.

So, it comes back to you. A budget won’t change your behavior, only you can do that.

Step one to making a budget work for you is to have a budget that you’re comfortable with. Add in wiggle room for emergencies and some money for extra treats if you can.

Step two is NOT to just “STICK TO IT” as many advisors would have you think, but to be much more conscious with your spending decisions. Both the little ones like your daily latte, and the really big ones, like which neighborhood you live in or public vs. private education for your kids.

One of the most powerful things you can do before committing to larger items in your budget is to SHOP AROUND. For example, a mortgage is probably the biggest single financial decision you’ll make in your lifetime, but only 50% of people shop around for mortgages before making that decision. The impact of a single percentage point in interest can be tens of thousands of dollars that are available for other items in your budget!

The best part about having a budget is that once you are saving money, and have some investments underway, it’s a great feeling to see your numbers go up on a monthly basis. There is nothing fun about paying down debts or trimming costs – but it is essential to provide the foundation for future growth and buying yourself better options in life.

Here’s a great thought to end with that is very applicable to budgeting from the great Eleanor Roosevelt:

“It takes as much energy to wish as it does to plan.”

Sadly, money issues are one of the leading causes of divorce in the United States. Setting up great financial practices as a couple is one the best things that people can do to give their relationship a chance to thrive.

But what happens when your money styles are out of sync – and one partner is more focused on saving, while the other is more focused on spending?

Here are some ideas to help make savings a joint goal:

  1. Have the conversation

Don’t make a big deal of it. State that this is something that is important to you – and something you would like for the two of you to do as a couple. Keep the conversation on the practical: “Let’s set a goal and save some money” versus an emotional blame game.

  1. Set a joint goal that is relatively easy to accomplish for you both

Discuss what goal you would like to tackle first. A good idea is to make it an achievable goal, and something that is positive and pleasant for you both. A good idea is to save for a vacation, or a weekend away.

  1. Select a method and a timeframe for saving

So where is this money going to go? If you don’t already have a joint savings account, now is a great time to set one up. Mark your calendars with your target goal date, and set up a direct deposit to automatically route money into the savings account.

As you progress, make sure you discuss how you’re doing against your goal, and keep the conversations positive. You can achieve your goal faster by cutting back in other areas of your budget, and putting the savings towards the goal.

Where many couples fail is that they make this an emotional conversation, or worse, blame their partner for being ‘bad with money’. Other contributors to savings failures are when unrealistic goals are set (“let’s be debt free in 3 months!”) or the methods to achieve the goals are impossible to live with (“let’s not go out for 3 months while we pay off our credit card!”).

Once you’ve started to build your savings muscle as a couple, you can extend this behavior into a larger long-term goal (like saving for a deposit on a house), or work toward multiple goals at once. Think about how your options in life will open up as you pay off debt, save an emergency fund, and save a base of money to grow together for your future. A simple trick to keep you on course is to build mini rewards along the way (and if they don’t cost much money, even better!)

When your goal is to help your partner get better at saving money, the #1 thing to remember that it takes a lifetime to build up financial habits, and they don’t change overnight. Be patient, be positive and make it a joint effort. Make changes in your own behavior to make sure your partner understands that you are trying to change too.

It can be helpful to talk about why they overspend (remembering what you consider overspending may seem very reasonable to your partner). A good conversation to have is to draw and review your respective ‘money family trees.’ Talk about the habits your parents instilled in you as a child, or the impact of seeing an uncle go broke, or how your sister has a bad case of the ‘keep up with the Joneses.’ You’ll learn a lot about each other by looking at your extended families behavior from an objective perspective – with the goal of understanding why you act the way you do.

There are a few other things to do while you’re at it. Make a commitment to each other to not hide spending. A great way to be open about where money goes is to set a line in the sand where each person can make a decision without the other’s input (say a $100 purchase) – but for anything over than amount, it should be discussed. This works even better when you have a budget with a set amount for discretionary spending (clothing, entertainment, eating out etc.).

If you can - a great idea is to make a commitment to live off one income and save 100% of the other. This creates a clear path to savings. And should either one of you lose your job, you won’t have to tighten your belt significantly as you’re already living well below your means.

Remember, start small, keep it positive, and make your partner see that saving is not about deprivation – but about creating positive options for your future.

What a great question!

The super investor Warren Buffet has a great quote: “Do not save what is left after spending, but spend what is left after saving.”

The idea that you should plan your savings is a terrific one. If you target your savings and are disciplined with your spending, it can help you save considerable amounts of money. And in the long run, continuous, regular contributions to savings, which can be grown over time, are proven to be the most effective way of growing your wealth.

So, how much should you be saving? First of all, you shouldn’t force yourself into a box that makes your life difficult. You don’t want to put so much money away that your quality of life suffers. So the amount you target for savings should be reasonable.

Your savings target should also be relative to what you earn. If you aren’t making much money, it will be difficult for you to save any money. Also, if you have a lot of debt, especially high interest debt, it is a very good idea to pay off your high interest debt first before you put money away.

But if you are ready to save, you should set a target for your savings. An interesting approach is to segment you paycheck into three separate chunks, with each going to a specific category of spending. A popular version of this is the 50/20/30 rule of thumb. With this approach, you allot 50% of your take home pay for essentials (rent, food, transportation), 30% is allotted to discretionary spending (entertainment, clothing etc) and 20% is allotted to financial priorities. 

This formula is popular because the 20% allocation to finances is flexible. If an individual has high interest debt, the financial allocation will go to pay off debt (and pay your highest interest debt first!). If you have no debt, then the allocation can go into retirement contributions, investments or into savings.

But for many people, this 20% allotment will be difficult to match. For those just starting out, 20% would be a considerable percentage of their income.

For people who are in their early years of earning and have little disposable income, a slightly different version of the 50/20/30 rule may be more appropriate. Instead of 20% for finances, a more reasonable starting point may be 10%. If you have a heavy burden of debt, all of your 10% should go to paying down debt.

For every year that passes, you should add one percentage point to the amount of money you put towards financial issues. So after 10 years, you will reach that 20% target. By the time you get there, you will probably have paid off your debt, have saved a good chunk of money and will be putting all of that 20% into an investment account. Cha ching!

Here is one last strategy that can help you get to your savings goals. It is a simple savings plan that targets your monthly non-essential spending. The money you spend on entertainment, eating out or taxi rides is the most variable spending you have. It also tends to be the most abused form of spending you have. So by setting limits on this spending you can target a set amount of savings at the end of each month.

A simple way to do this is to go to the bank at the beginning of the month and take out the all the cash you’ll need for discretionary spending for the entire month. And that’s it. You can’t use your credit card or go back to the bank. What you get in cash is what you can spend on non-essential items.

The idea is that if you see your month’s worth of money in front of you, you will be forced to make rational decisions about how you spend it. And as that money in your wallet disappears, you’ll be forced to make critical spending decisions about how you spend that money. If your money is dwindling, you’ll skip that taxi ride to work and take a bus instead, or you’ll bring lunch to work, or delay buying that new pair of shoes…

It’s a simple way of budgeting without actually making a budget. You literally see how much you have to spend and make decisions based on what is left in your wallet. Then at the end of the month, if all goes well, you’ll have a nice pile of money left that you can move over to savings!

So do your best to target a portion of your paycheck for savings. Make sure it is reasonable. Take care of your debt first if you can. And when you have money at the end of the month, move it into a savings account or your investment account.

We understand that saving is not easy to do. Most American’s don’t even have one month of income saved in their bank accounts. So if you are struggling to save, you are not alone. But try to make saving a goal. If you do, you should be able to consistently put money away for the future.

Sometimes it can feel that you work so hard, just to stay in the same place financially.

Finding extra money can be extremely difficult. The world around us keeps pushing us to spend. Advertising, peer pressure and day-to-day necessities all push us to take our hard earned money and spend it on things.

When you have extra funds but you also have debt, the big question is – what is more important? Debt reduction or savings? Do you prioritize paying down your debts, and reducing your interest payments, or do you build a base of savings?

The short answer is BOTH!

First of all, you should always have some cash saved and easily accessible as an emergency, or contingency fund. Life is never smooth, so having spare cash at the ready is extremely important; more so if you are self employed or have an unpredictable income.

You should really try to save 6 months of living expenses. It may seem like a lot of money to have sitting in a savings account, but if you aim to save that amount of money, you’ll be insulated from a lot of surprises. The thinking here is that if you’re living paycheck to paycheck and have debt, if you get a nasty surprise, you don’t want to get buried under more debt.

So if you haven’t already done it, set up a savings account and make a plan to put some money towards it each month.

At the same time, take a look at your high interest debt. High interest debt is debt with double digit Annual Percentage Rates (APRs). You’ll find these on credit cards, store cards, and payday loans. If you have substantial debts here, it makes a lot of sense to pay these debts down. For every $100 of this debt you pay down here, you could save at least $15 in interest payments per year. Just don’t overspend and put that debt back!

Just like for your emergency fund, set a plan to make a monthly payment to pay down your debt.

These two deposits should be non-negotiable. Setting up a direct deposit can help a lot with this.

Once you have paid down your high interest debt, and built an emergency fund, then (and only then) do you start saving for a specific goal like a down payment on a house, or a vacation, or putting more money into a retirement account. All of these choices are great and offer different benefits depending on you situation.

Here are some guidelines for each:

Saving for a goal. Saving up for a down payment on a house or a car can have huge knock-on benefits. A car can open job prospects, better schools or cheaper shopping. A house can offer security and stability and is a usually a good investment in itself. If any of these are a priority to you, then putting money aside for these goals is a terrific idea. If you want to put money aside for a vacation, it’s not as great a use of spare money.

Put money into a retirement account. If your employer has a 401K and matches some contributions, then putting money into a 401K is a terrific idea. Try to contribute enough so that you max out your company match. If you don’t have access to a 401K then an IRA may be a good idea. These accounts allow you to grow your money tax-free and either defer your taxes until you withdraw it (with a traditional IRA) or withdraw it tax-free (with a Roth IRA)

But only contribute money to these accounts if you are positive that you won’t need the funds until retirement. You will be able to withdraw some of the money for a house or for school, but the bulk of the money in these retirement accounts must stay there until retirement. If you withdraw the money early, you will get hit with severe penalties.

Paying down debt with moderate interest rates. Once you drop below double-digit interest rates, the benefit of paying this debt down is lower. Now when you pay $100 in debt, you’re only saving $6 or $7 dollars in interest payments. But if you don’t have a short-term plan for your savings, then paying down this debt is a good idea.

If you still have spare cash after all of this, then you can look at opening a regular trading account and investing outside your retirement account. These accounts have no tax benefits, but do allow you to grow your money through investments in stocks, bonds, Exchange Traded Funds and Mutual Funds. They are a great way to grow your spare money.

Finally there is the option of paying down your low interest rate debt. This includes your mortgage. Paying down this debt faster than scheduled is usually the bottom of your priority list. The returns you get from of all of the above mentioned strategies usually outweigh paying down your mortgage. But your house is you single biggest investment, so it does feel good to pay it down.

So use this list as a guideline for your ‘debt reduction while saving’ strategy. There is no right or wrong strategy. Some may be better than others in terms of bang for your buck. But they all help you save more money.

Just make sure that you are saving something every month and putting it away somewhere. If you make saving your money a priority, a lot of opportunities will open up for you.