Financial Foundations: Part 5 – Future Savings

This is the fifth of ten posts describing the key pillars of building a strong financial foundation. Read the introduction here. Check back each Monday for the next post in the series.

Once you are able to set up an emergency fund and begin to pay off your debt you can now start to look at saving for the future. People tend to underestimate how much money they can save over long periods of time and limit themselves by not starting early enough to save for big goals. There is always something to save for, no matter what stage of life you are in, and paying yourself first will allow you to reach your savings goals for the future.

Delayed Gratification

The most important principle to focus on when trying to develop a habit of saving your money is delayed gratification. The world has created a culture of ‘now’. If convenience is king, greed is its queen. You can pull up to any fast food restaurant and get dinner in seconds. There are grocery and department stores with products from all over the world available at your fingertips. In a few clicks you can buy almost anything you can imagine and have it at your door in a few days. Cell phones have the ability to video chat with people around the world.

We have become focused on having everything right now, when we want it and without delay. To mature financially one must develop a habit of postponing or canceling certain purchases, but still being satisfied with what you have. This allows for more money, happiness, possessions or charity later in life. By focusing on the later, you may find that you actually enjoy the now just as much without all of the extra money being spent.

Near Term

The first simple savings goal to develop is to save for things that are only a few weeks or months away. A prime example of this would be Christmas. Everyone knows that the holidays come once a year, but how many people actually save specifically for the presents that they give and the travel expenses? Why not start saving for Christmas now?

First determine how much you’d like to have saved. Then break this larger number down in to smaller monthly goals. Begin by saving just your monthly amount and by the time December rolls around you will have reached your goal.

Long Term

The same philosophy can be used for larger, long term purchases. If you know you are going to be buying a house, having a child or even sending one to college you should start to save as early as possible. Not only will it give you more time to put away a little bit at time, you will be able to earn interest on your savings through investments such as certificates of deposit. Use the same tactics of determining a number as a goal and break it down into smaller goals. Starting with just baby steps is how you achieve your dreams.


If there is one savings goal to not put off to the last minute it would be retirement. It is very important to get started on retirement savings early because of compound interest. J.D. Roth over at Get Rich Slowly explains the huge power of compound interest in this article. I suggest reading his article if you don’t yet understand how big an effect it can have on savings. Here’s a key takeaway:

For example, if 20-year-old Britney makes a one-time $5,000 contribution to her Roth IRA and earns an average 8% annual return, and if she never touches the money, that $5,000 will grow to $160,000 by the time she retires at age 65. But if she waits until she’s my age (39) to make her single investment, that $5,000 would only grow to $40,000. Time is the primary ingredient to the magic that is compounding.

Where to Save It

Long term savings should be in accounts that offer as much liquidity as you need but also somewhere that can earn interest. Shorter term savings can be in CD’s or money market accounts, while longer term savings can be more aggressively invested in your 401k’s or Roth IRA’s.

Make it Automatic

The key to reaching your future saving goals is to make the act of putting money aside automatic. When you have to think about putting the money into savings you can think of excuses, forget to do it or spend the money on something else. By using direct deposit from your employer or scheduling transfer at your bank you take the mental side of saving out of the picture.

As another cornerstone of your financial success, saving for the future can teach you to be happier in the moment and plan for the life that you want down the road. Sit down this week and take some time thinking about how you want your life to be different and how you can start saving money to make it happen.

Financial Foundations Series