The next time you receive a raise from your employer, put this money towards savings instead of spending it.
In an exclusive GOBankingRates interview with Jaime Catmull, Barbara Ginty, CFP and host of the Future Rich Podcast, shares why it’s smart to split a pay increase with yourself. Plus, Ginty reveals the savings advice that isn’t worth following — and the advice that will build your wealth.
What steps do you recommend people take to reassess their savings when they get a raise or other significant increase in their income?
When you get a raise or pay increase, it is always a good idea to increase your savings, since you are not used to living on the new income. An easy way to do it is split the increase with yourself: half for today and half for your future.
What common savings advice should people generally not follow and why?
Bad advice is the idea that there is a quick way to build wealth. Wealth takes time. Building it is boring… I see too many people trying to get rich quick. The hot stock tip generally doesn’t work out, and that is more akin to gambling versus long term investing.
Buying a house before you can afford it is another financial misstep I see often. There is a lot of societal pressure to buy a house, but you need to be financially prepared before you do. Once you own a home, there is constant upkeep, which involves both time and money.
How much money do you think every American should aim to have in a savings account?
At least six months of essential spending at a minimum. If you have more dependents, you could work towards 12 months. The great news now is your emergency fund can make money, since we have good rates on high-yield savings accounts.
Can you suggest any unconventional methods of saving that might add an element of fun?
Pay yourself first. I believe in saving first and spending what is left after you have saved for your various financial goals.
You can always rotate various areas of spending to help meet savings goals. For example, eating all your meals at home can help bolster your vacation fund.
Jaime Catmull contributed to the reporting for this piece.
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This article originally appeared on GOBankingRates.com: Money Expert Barbara Ginty: Why ‘Half for Today and Half for Your Future’ Could Make You a Millionaire