Several weeks ago, I had the pleasure of meeting a young man who emigrated to the U.S. from Africa, and he wanted to know if he was saving enough for retirement. As I proceeded to ask him the usual questions—when would you like to retire, what kind of lifestyle would you like to have, how much have you already saved — I began to realize that this individual was quite different from most of the ones I talked to. It turns out that he is already saving 25% of his pay but was able to save more and wanted to discuss his options.
Most people I run into are saving between 5% and 10% for retirement so I inquired as to what this person was able to do to save so much. He shared with me a rather simple thing he has done that motivates him and his wife with respect to spending and saving money. He called it his “dream board.”
As the name would suggest, he has a board on the wall in his home where he places images of things he’d like to obtain at some point in the future. Currently, he has his eyes set on a new car so what he has done is cut out pictures of the type of car he would like to get and posted that on his dream board. Every day, he is reminded of his goal so that when it comes to making financial decisions, he can consider whether those decisions are getting him closer to or further from his goal.
I think this is something we should all do. Every day we are making financial decisions, but too often we are making those decisions in a vacuum, not realizing how those little decisions each day can add up to large amounts of money over time. Consider this example: if you saved $10 a day for the next 10 years at a 5% rate of return, those Alexander Hamiltons would turn into several hundred Benjamin Franklins (over 400, to be more precise).
Sure, it’s easy to plug numbers into a calculator, but it’s quite different putting money aside for goals. According to data released by the U.S. Department of Commerce, the current Personal Saving Rate is 3.2%. That’s a far cry from the 21.4% Forbes says you’ll need to save for a secure retirement if you are starting at age 30.
Most of us understand the importance of saving in our head, but how do we transition that to our heart? That’s where the dream board comes in. By creating a dream board, you begin to attach emotion to your financial goals. That emotion, coupled with the head knowledge, is vital to achieving financial goals. To put this into practice, take these three simple steps:
Step 1: Create your dream board.
Personally, or with your spouse or significant other, consider what short and long term financial goals you have and look through images in magazines or online that can help you visualize those goals. For example, do you look forward to traveling in retirement? If so, find images of travel destinations you would like to visit. Is getting out of debt an important goal? Consider what life without debt may look like and associate images with that debt-free lifestyle. Place these images on a poster board or wall that is conspicuous and visible on a daily basis, perhaps on the door to the garage or the basement.
Step 2: Determine how much you’ll need to save regularly to achieve that goal.
Using a financial calculator, you can determine how much you need to save each month or each year to reach specific goals. Here are a few calculators that may help:
- For retirement: https://secure.financialfinesse.com/go/4831
- For college savings: https://secure.financialfinesse.com/go/2999
- For general goals (e.g. an emergency fund, buying a car, a down payment on a home): https://secure.financialfinesse.com/go/2991
Step 3: Put your savings on auto pilot.
Once you determine the amount you need to save regularly, create an automatic savings program by having money automatically transferred from your checking account to a savings account or maybe even having part of each paycheck directly deposited to a savings account. The type of savings account you use will depend on how long you plan to save before attaining your goal.
You may have to sacrifice a few things today in order to save more for the things of tomorrow, but with the help of the dream board, you may decide that it’s worth it!