Before Investing, Get Your Savings in Order

Although most of his experience was with high net worth clients, financial advisor William Bernstein understood that saving for retirement was difficult for most people. In an interview with The New York Times, Bernstein explained that if only Americans got sensible saving advice  when they were still young, they would have a much better chance of having enough money to live comfortably when they grow old.

"Long-term saving can be thought of as an investment in yourself."

With that in mind, Bernstein wrote and published "If You Can ," a relatively short pamphlet that outlines a very basic retirement savings plan. It's general enough to work well for almost anyone, yet still specific when it comes to important details like when and how to begin on the path to retirement. In essence, what Bernstein recommended is what most financial professionals will likely suggest: Start small, stick with a plan, and focus on growing your wealth, not becoming rich quick.

Forming a plan

As Bernstein explains in his writing, before anyone can really begin saving for retirement, they need to get their spending under control. That doesn't just mean fewer take-out lunches and shopping sprees, but also means paying off high-interest debt. After that, savers need to build an emergency fund of cash that can see them through a rough patch. Only once these goals are accomplished should someone be investing, and depending on their unique situation, this could take only a few months or several years.

First, it's helpful to take a close look at the debt you're paying. As Bankrate explained, many people get hung up on the seemingly contradictory advice  that they need to save money but eliminate debt. In reality, it just takes a little prioritizing.

• High-interest debt should be the first to go, since it only gets more expensive as it grows. Credit cards are the most common source of high-interest debt.
• Not all debt is created equal. Some of it, like a mortgage or student loan, is practical and tends to be attached to a lower interest rate. It's not essential to pay these off quickly, but it never hurts to contribute more than the minimum payment to pay them off faster, if possible.
• Work to reduce your spending and debt while increasing your savings or income until you are earning more than you spend each month.

Emergency funds

With a handle on debt, you're already halfway to becoming a successful investor. But before you get too far, you need to establish a safety net. As Nerdwallet explained, it's important to save for long-term expenses  like retirement, but you still need to plan for the unexpected. A medical emergency, car repair or layoffs could quickly derail your savings plan if you aren't careful.

That's why it helps to establish an emergency fund - a small but useful stash of funds that can be easily accessed when needed. There's no hard-and-fast rule, but most recommend an emergency fund constitute at least a month of basic living expenses, like housing payments, insurance and food. That money should then go in a separate place, like a savings account, making it easy to access but less tempting to meddle with.

An emergency fund is a crucial final step on the way to sensible investing because it spreads out your exposure to risk. Even with safe investments, there's no telling how the market will behave. An emergency fund built using liquid cash won't grow much in a savings account, but it should prove itself useful when the need arises.

The finer points of investing are best left to the experts, but that doesn't mean there's nothing you can do now to set yourself up for a bright future.

Vectra Bank can help you start your savings plan.