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The quarter is coming to a close, but there’s still time to take a really positive step toward improving your financial situation.  Regardless of how much they make, most people we talk to wish they could save and invest more for their future.  Fortunately, there is a simple little technique that can really help.

Typically each month, most people settle into the same process of paying their bills.  You pay the mortgage, the utilities, the cable company, etc.  After all, that’s what you’re supposed to do, right?  Well, yes, but you can do more.

You can pay yourself.  In fact, one of the first tenets of financial planning involves the simple habit of paying yourself first.  Make the first payment of each month into your own savings account.

This is simple, but it does involve discipline.  Americans’ saving patterns have varied widely, and often they are driven by short-term economic trends.  For example, the U.S. Personal Savings Rate was estimated to be less than inflation in the years leading up to 2008, then it skyrocketed to 6.5% in 2008 as a result of the housing and banking crisis. People got scared, and they started putting money away for a rainy day because the rainy day had arrived.  But three years later, as the crisis and storm clouds receded, the savings rate started to fall again, and it’s down to about 4% today.

Sources: Bureau of Economic Analysis, 2012; National Bureau of Economic Research, 2012; for the period January 1, 2002 through December 31, 2011.

Prioritize And Discipline

Clearly, the statistics show this simple technique can be a challenge. There always seems to be an endless stream of bills to be paid.  The truth is that in the vast majority of cases, people are letting their expenses – and thus their bills – increase to consume the available cash they have to spend.  This phenomenon is exacerbated during the good times.   The genius of paying yourself first is that you reduce the amount of cash available to spend, and for most people in most situations, expenses settle down to a lower level.

You just have to make paying yourself first a priority, and then you have to discipline yourself not to rob the piggy bank.  The first time you try this you may only be able to pay yourself a small amount.  But it’s a habit, and like any other habit, it grows easier the more you do it.  Start with $200/month, or $100/month, or $50/month, etc.  Just start somewhere and then gradually increase it.  You’ll be surprised how quickly you fall into the new habit.

Now Make Your Savings Work For You

During the productive phase of our lives, we need to do two things.  You need to work for your money, but you also need to make your money work for you.  Sticking your savings in a mattress was never a good idea, and it’s not become one now.  Savings accounts don’t pay much either, but they can be a place to accumulate funds, which are then transferred into an investment account.  Perhaps it makes sense to accumulate money in savings for a quarter or two and then transfer the balance into investments.  Maybe it makes sense to go straight from the paycheck to the investment account.  It depends on how much you’re putting aside.

When it comes time to transfer the accumulated money into an investment account, don’t gamble with it, but don’t be afraid of taking calculated risks.  What’s the difference?  Unless you’re a professional money manager, buying individual stocks is pretty close to gambling.  There’s really no way for you, as the amateur, to accurately and consistently figure out which stock is going to do well and which stock isn’t going to do well.

Investing in a well diversified mutual fund, on the other hand is calculated risk.  By owning a little bit of a lot of stocks (that’s what a stock mutual fund provides), you’ve spread the risk across lots of companies.  If one company’s stock does poorly, there will be lots of other ones in the mutual fund that probably do well.  Together, they’ll do very well if you give them enough time.

We’ve all seen that the market can go down – and go down by a lot.  But we’ve all seen that the market comes back up.  This has always happened.  If you can be patient and calculated in the risk you take, the wild swings in the market won’t hurt you.  In fact, if you’re contributing into an investment account on a regular basis, the downs can be a very profitable time for you.  When you buy low, you make a huge profit when prices come back up.

You’re In Control

The bottom line is that most people can substantially improve their financial system with just a few slight changes in their behavior.  You are in control.  Pay yourself first, be disciplined and make your money work for you.  You’ll wake up one day and be amazed at how wealthy you’ve become and how much better retirement looks.