This one rule could change your financial future

The Treasury Secretary explains MyRA: A 'starter' retirement account
The Treasury Secretary explains MyRA: A 'starter' retirement account

Americans are deep in the throes of a savings crisis, and the problem seems to be getting worse, not better.

In 2015, a survey by GoBankingRates.com revealed that 62% of Americans had yet to amass $1,000 in savings. In 2016, that percentage climbed to 69%. Worse yet, the number of Americans with no savings at all jumped from 28% in 2015 to 34% in 2016.

But that's not all. It's also estimated that one-third of Americans, many of whom are already in their 50s or older, have no retirement savings, either. And those who are saving aren't socking away enough. According to a recent Transamerica study, the median amount saved for retirement among baby boomers -- those nearing retirement -- is just $147,000. It's not surprising, then, to learn that 60% of Baby Boomers are more afraid of running out of savings in retirement than dying.

Even Gen Xers are far behind on their nest eggs despite having had access to retirement savings plans from the start of their careers. Transamerica reports that the median savings balance among Gen Xers is only $69,000. Meanwhile, only 12% are confident they'll manage to retire comfortably.

All of this might paint a pretty bleak picture, but there is some good news. If you follow one simple rule from this day on, you'll have a real opportunity to change your long-term financial picture: Pay yourself first.

Before you spend any money on bills, entertainment, or whatever other expenses come your way, put a portion of each paycheck into a savings account. If your emergency fund is lacking, complete it first. If you have enough short-term reserves, focus on retirement.

Ideally, you should aim to put 10% (or more) of each paycheck into savings, but if you can't hit that target just yet, do what you can. But no matter how little you sock away, make sure to save something before spending a dime. It's the only way to guarantee that you'll have money available when you really need it.

Get your priorities straight

Most of us know that it's important to save money in theory, but have a hard time doing so in practice. And it's understandable -- we all have bills to pay, and some of us are already working a second job just to get by.

But if you fail to follow this basic savings rule, you could easily get into trouble the moment an unexpected financial emergency strikes. Without ample savings, you may have no choice but to resort to debt if you lose your job or a whopper of a bill falls in your lap. Worse yet, you could even lose your vehicle or home. That's why it's important to stash three to six months' worth of living expenses in a savings account earmarked for emergency situations.

But it's not just emergencies you'll need money for. Once retirement rolls around, you'll face a world of expenses, from housing to healthcare, and if you don't save independently, you risk running out of money in your old age.

On the other hand, if you start prioritizing your nest egg, you stand a strong chance of retiring in comfort. The following table shows how much you stand to accumulate if you start saving just $200 a month at various ages:

Saving $200 a month at age...
Savings at age 65*

25

$622,000

30

$413,000

35

$272,000

40

$175,000

45

$110,000

50

$65,000

55

$35,000

*Assumes an 8% average annual return

Notice the difference between kick-starting your savings efforts at 25 versus doing so five years later. Thanks to the beauty of compounding, you can turn a relatively small amount of money into a much larger sum by putting it to work.

Now these calculations do assume an 8% average annual return, which you're less likely to achieve by playing it safe. Rather, you'll need to focus your investments on stocks to come away with that kind of return. But history has shown us that scoring an 8% average return over an extended period of time is indeed doable, so the earlier you start saving, the more you stand to gain.

Make it automatic

It's one thing to say you'll start saving money each month, but it's another to actually do it. If you're not in the habit of saving money, take temptation out of the equation by automating your savings.

If your emergency fund needs work, arrange for a portion of each paycheck to land in your savings account before you get a chance to touch it. If you have enough emergency cash, sign up for your company's 401(k) plan or arrange for part of each paycheck to go directly into your IRA. You can't spend money you never see, so if you make your savings automatic, you're far more likely to succeed in your efforts.

Now you might argue that if you're already living paycheck to paycheck, saving part of your income automatically will render you unable to pay your bills. If that's the case, you'll need to reevaluate your spending and find ways to lower your expenses. This could mean downsizing your living space, giving up your vehicle, or cutting back on leisure until you're earning more money.

Is any of this ideal? No, it isn't. But if you don't take steps to start saving, you risk running out of money in retirement or facing serious consequences when an emergency hits.

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Remember, as much as you might think you need every penny you earn right now, there will inevitably come a time in your life when you need that money even more. If you make it a rule to always pay yourself first, you'll have a safety net to fall back on when you need it the most.

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