How to stay focused on saving for the long term

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There is no denying that the events of the first half of 2022 have made it increasingly difficult to save and invest. Between the highest inflation rates in 40 years, the painful sell-off in the bear market, and rumors of an impending recession, creating or sticking to a long-term savings plan can be daunting.

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However, it’s more important than ever to stay focused on your long-term savings in this unpredictable environment. Here are some tips to help you cut through all the noise and start or maintain a long-term savings plan.

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start small

The easiest first step when it comes to building long-term savings is to start small. If you’re starting from scratch, consider setting aside $100 a week, or if that’s not feasible, even $20. The important thing is to get into the habit of investing some of your money rather than spending it all.

Over time, even small savings can turn into big savings. Imagine investing just $20 a week with a 10% annual return from age 20 to 65. Even this small weekly investment, which you might not even notice, could amount to around $800,000.

Separate long-term savings

In an ideal long-term savings plan, you will have different pools of money for different purposes. For example, you might want to set up separate accounts for emergencies, vacations, education expenses, and retirement. Once you have your long-term savings plan in place, avoid the urge to dip into it or transfer money from one use to another.

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Automate

One of the best tips for focusing on your long-term savings is to automate your contributions. This way, money is withdrawn from your account every month, whether you think about it or not. This can help avoid the common mistake of paying bills and other expenses first, with the intention of investing what’s left over.

In most cases, there will never be any part of your paycheck left over by following this strategy. Investment automation first takes out your long-term savings money and forces you to live off what’s left, which is the best way to make sure you stick to your investment plan.

Set checkpoint targets

When you first create your investment plan, determine exactly where you want to put your savings at certain checkpoints. For example, you might set a goal of saving $100,000 by age 30, $500,000 by age 50, and $1 million by age 65. Whatever your goals, check to see if you’re on track over the years so you can make adjustments to your plan as needed along the way.

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Understand your goals

Knowing what you intend to use your savings for the long term is a great psychological tip to keep you on track. It can be hard to give up immediate gratification for a nebulous long-term goal like “retirement,” but if you can attach details to that goal, it can give you extra motivation.

For example, you might imagine how a $1 million retirement nest egg will allow you to travel the world, visit friends and family more often, buy your dream vacation home, or even give a certain amount to charity. Whatever drives you when you close your eyes and dream about the future, tie it into your long-term savings plan to give it tangible value.

Revise your plan, but not too often

While you shouldn’t day trade your long-term savings account, neither should you just “set it and forget it.” Generally speaking, you should review your investments at least once a year, with many advisers recommending a quarterly schedule. This way, you can make necessary adjustments, such as selling stocks that have a fundamental change in their long-term outlook or rebalancing your account back to its original asset allocation.

However, checking your accounts too often can lead to excessive trading, so resist the urge to tinker with your investments daily or even monthly.

Keep emotions out of the equation

Human beings are emotional creatures by nature, and this is especially true when it comes to money. But getting emotional about your investments can cloud your judgment.

For example, when prices are skyrocketing and it looks like they will never come down, it is human nature to want to buy more. When prices are falling and it looks like the economy will never recover, it’s common to feel the need to withdraw all your money to “protect” it. But these actions are the opposite of the idea that you should “buy low and sell high”.

Emotions tend to lead to bad investment decisions, so do your best to stick to your investment plan, whether times are good or bad, and your future savings account balance will depend on you. will thank.

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About the Author

After earning a BA in English with a major in business from UCLA, John Csiszar worked in the financial services industry as a Registered Representative for 18 years. Along the way, Csiszar earned the Certified Financial Planner and Registered Investment Advisor designations, in addition to being licensed as a life insurance agent, while working for a major Wall Street distribution house. and for his own investment advisory firm. During his tenure as an advisor, Csiszar managed over $100 million in client assets while providing personalized investment plans to hundreds of clients.

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