How can I save effectively?

DEAR KUYA ROMAN

Q: I am an accountant by profession in the state of Virginia, and I make decent income. The problem is that I can’t seem to save. Can you give me an advice on how I can save effectively? —Candy

A: You are in one profession I consider very stable in the US. Accountants are always in demand in every state, so take advantage of the benefits of being one. Let me share with you five saving strategies which have worked for me.

First, treat savings like a monthly bill. After you get your salary for the month, write yourself a check and put it in an interest-bearing account—never under your pillow. Put it in a certificate of deposit (CD) in a bank, perhaps, or a retirement account (i.e. Roth IRA, a regular individual retirement account), which you can easily do online.

I am assuming you can actually afford to do so and you are still able to pay all your bills on time. If not, then of course you have to either find a way to tighten your belt even more or find a second job, to allow you to save.

Second, take advantage of compound interest. What is that? Simply put, if you invest in an instrument which bears interest, the next day, your money which gained interest will then gain additional interest.

In short, it compounds and gets bigger. If you put $1,500 under your pillow, after 6 years, it will still be $1,500. An amount of $1,500, if deposited in a bank paying an annual interest rate of 4.3 percent, compounded quarterly will be worth $1,938.84.

If you are wondering how long your $1,500 doubles at 4.3 percent interest, simply divide 72 by 4.3, and that is how long it will take your $1,500 to reach $3,000. In which case, it takes 16 years to do so. This is called “Rule of 72.”

Third, sign up a partner so you can police each other to save. Agree to save $100 a month each, for example, and put it in a joint account where you need two signatures to withdraw. Make sure you make this known to the bank, or make sure you both have a password to your online account so you can police each other.  Having someone to police you make it easier and effective, since you have each other to cheer for.

Fourth, make it automatic. I have asked my company to take out $150 from my paycheck every month to put into my 401-K, especially since my company will  contribute 8 percent of my annual salary into my 401-K if and only if I contribute myself.

Lastly, I have set up an overseas account that is hard to withdraw from. I opened a CD account in the Philippines through one of the major banks, for example, and I write a check to my account every three months. Since it is a bit complicated to withdraw from it, and since it is overseas, I tend to not touch it. I hope these five strategies will help you save up. Good luck and God continuously blesses your pockets!

Kuya Roman

(Roman Corpuz is a clinic director for a nonprofit organization in Washington. He teaches immigrants, refugees and asylees how to become self-sufficient through various programs like microfinance and financial trainings. He studied Economics in the University of the Philippines and used to work for the Senate of the Philippines as a legislative officer.)