This is Part 2 of a three-part series, Navigating the Financiapocoalypse. It’s intended as a get-started guide for people just starting down the path of actively managing their money.

Even more important than how you’re spending your money this week or this month is what you’re doing with what’s left over. Americans are saving less than ever before, at a time when health care costs are rising and retirement plans (and the chances that Social Security will exist in 35 years) are dwindling. You do not want to get caught with your pants down later in life — start saving now. Save early, save often. In an economy like this, though, forcing yourself to save can be tough.

Set a goal

As I said in part 1, I don’t track every dollar of my monthly expenses. I do, however, kind of have a reverse budget — I don’t map out my monthly expenses, but I do keep an eye on my savings percentage. I set a goal — say, I want to save at least 30% of my take-home pay every month — and if I’m not meeting that goal, or not able to meet it comfortably, then I know I need to go back and re-examine my “right now” expenditures. Once you have a number to shoot for, you have to set some things in motion to achieve it.

Emergency fund

First off, over and above whatever big purchase you’re aiming for (house, car, vacation, etc), you should have an emergency fund. This fund should never be touched except for unexpected large expenses — a major car repair, a big medical bill, or as your safety net in case you get laid off. It should contain enough to get you through at least 6 months of necessary living expenses. If you cut back to the essentials and run the numbers, most people find this number to be between $10,000 and $15,000. Obviously, that will vary depending on where you live. Yes, that’s going to sound like a lot to some people, but it’s better to have that in place (and earning interest) than be ruined by credit card debt when something big and unexpected happens. People brush this off all the time and at some point regret it…do your best to build this fund up as soon as possible.

The big stuff

Once you’ve got an emergency fund in place (or underway), think about what’s next. A new car? A big vacation? A home theater system with all the bells and whistles? For my wife and I, the next big thing is a house. We know about how much we’ll have to spend to get what we want, and we know about when we want to spend it. Knowing that, plus we want to do at least a 20% down payment (to avoid the extra PMI that gets tacked on if you have to borrow more than 80% for a house), it’s just simple math to determine how much we have to sock away each month to meet that goal. It helps you quantify your sacrifices: “If I buy this new camera, that’s like setting me back a whole month on the house savings. Is it worth it?”

So what will you save for? Answer that question, and crunch the numbers. Give yourself a little extra padding too so you don’t blow everything on that one purchase. If you can save for big purchases in advance, you’ll save a ton of dough over your lifetime by not having to finance everything. My personal goal is to never borrow for anything again (unless there’s a 0% promotion on a new car) except for our house. Part of my savings plan includes monthly “car payments” — we won’t replace either of our cars for several more years, but it’s better to pay myself now — and earn interest — than pay later.

Paying in advance

Americans have become way too used to the “buy now, pay later” mentality. If you want to buy a $25,000 car, for example, and get a loan from the bank at today’s 6.83% interest, you’ll actually wind up paying $28,640. If you tuck away that same monthly payment for 4 years in advance in a high-interest savings account or CD (somewhere around 3% or 4% these days), you’ll actually only have to save a little over $23,000 to meet your $25k goal — that’s over a $5500 difference in price for the same car just because you were disciplined enough to save for it in advance. For a car, it will be a struggle to reset yourself to “pay before” from the “pay later” track, but once you do it, your monthly habits will be just like they are now — except you won’t be paying any interest. You may have to drive your current car longer than you wanted to in order to “get ahead” the first time, but it will be worth it in the end.

Make it automatic

None of this stuff is easy to do, of course. When you’ve got monthly bills and things you want to do right now, it can be tough to stay disciplined. But after seeing the numbers, don’t you want to be able to save? The best way to make sure you’re saving money is to do it automatically. There is simply no better way to do it. It becomes part of your monthly budget, and you get used to not spending that money. It is a very rare person who can save more without using automatic transfers.

I personally like ING Direct’s “Orange Savings” high-interest savings accounts. It’s not the absolute highest yield you can find, but their customer service is excellent and their web site is really secure and easy to use. There are no fees and no minimums for the Orange Savings accounts (unlike high yield accounts at most banks), so you have no excuse not to start right now. If you want to get $25 for free when opening an Orange Savings account with $250 or more, shoot me an email and I’ll send you a link. I’ll get $10 out of the deal myself. It’s ridiculously easy to set up an automatic monthly transfer from your checking account.

Do it now

Don’t wait. Go find a high-yield savings account and set up automatic monthly transfers right now. Even if it’s only $100 a month, do it. Procrastinating in developing your saving habits can hurt you more than you realize — remember, the money you don’t put in today is the money that’s not earning interest…and the interest you didn’t earn last month is also the interest that’s not earning its own interest this month! Yes, the beauty of compounding…take advantage of it.

Set up the automatic transfer. Get that emergency fund in place and start saving for your next house or car or whatever. Set up the automatic transfer. Having those plans and those funds in place will make you feel so much better than flying by the seat of your pants and loan payments. Did I mention set up the automatic transfer?

Good luck! Again, if you decide to go with ING, contact me and I’ll send you the link to get $25 free when you open your account.

Up next: thinking really long term…retirement.