August 14th is Financial Awareness day, and unlike some of the other silly “holidays” – I bet National Left-Handed Scissors Day is on the list somewhere – financial awareness/literacy actually matters.
Financial literacy is generational: unless you come from a family where credit, debt, interest rates, and income are discussed, you may have grown up without an understanding of these topics. Our first paycheque should come with some instructions on how to manage our money, but it doesn’t, so most of us are left to muddle our way through our financial journey on our own.
One financial tip I can share is to embrace the human trait of laziness. By that I mean don’t pretend that you’ll always have the mental energy to think about savings and set money aside. Instead, take human nature out of the equation and automate your savings by pulling money into a high-yield savings account on your payday. I use Wealthfront myself. There are many options, but none of them are likely to be with your bank. The day you get paid, the money is taken out. You never see the funds in your bank account for more than a day.
It doesn’t have to be a lot – it should be an amount you can handle not having and won’t go “Ouch!” and re-think whether you should save it. Maybe it’s $50 a month. Automate it and pretend that account doesn’t exist. Ignore it entirely if you can. Do this for five years.
$50 a month over 5 years at 4% interest is $3381. Imagine yourself “finding” that money five years from now and being thankful to your past self for making that choice. What if you could save $100 a month? That’s $6763 after five years. Could you maybe do $300 a month? That’s $20,291 after five years.
Compound interest is nice, but what’s even more impactful is automating your savings and taking human nature out of the equation.