You might be thinking of saving for something that you cannot afford today, but you’re struggling to make any progress. Most times, the most challenging part of saving money is starting. The following steps for saving money might help you develop a strategic plan to attain short and long-term savings goals.
TAKE CONTROL OF YOUR PERSONAL FINANCES
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1. Start today
Avoid postponing; start today by taking baby steps. You shouldn’t just think about it. Start doing it, and it will get better in the long run.
When you start with small amounts of money initially, it ensures saving becomes a habit, and it pays off at the end of the day. You won’t feel like saving is such a burden or feel like you’re making a significant sacrifice.
You also learn some financial discipline. Whatever amount you earn, try keeping at least 20% aside immediately after getting paid. The first two or three months might seem like a challenge, but you get used to it with time.
Make your savings at the beginning of the month, then proceed to make your monthly budget. It’s a great way to start managing your expenses. You develop much-needed financial discipline, and you’re able to save for your future while living within your means in the present.
2. Create a budget
You need to keep track of your expenses. Any savings plan requires a budget. When you create a budget, it helps you prioritize expenditure. You develop the ability to balance between saving and spending every month.
It’s not difficult to work out your regular expenses, such as rent and transport. Start by keeping track of your: receipts, bills, credit card statements. Deduct all of your monthly payments from your income.
It doesn’t matter whether it’s a part-time/full-time job, pension, government benefits, investments, or child support.
Check if your spending exceeds what you earn, start looking at what you can cut out or cut back on. Consider the essential things you need and what you could do without when figuring out your money priorities.
It’s advisable to update your budget every year at least once. It’s possible to do it frequently, too, if any of your earning circumstances change. Little things cost more, so track your spending.
3. Specific goals
Find out what you want your money to do for you and set a timeline. You need to work towards specific, realistic goals instead of just saving without any clear ideas in mind. Some goals include:
a) Save for retirement
No one wants to work forever; it’s essential to retire and have some fun.
The amount you save depends on different aspects of your financial situation. There’s a general rule of thumb that states that by 30, you should have 1x your salary saved, double by 35, three times that amount by 40, and so on.
If you can’t save 15% of your pay for retirement, start with what you can and increase it by 1% every year until you can save 15%. Overestimate expenses since unexpected expenses always come up.
b) Save for an emergency fund
Every household needs an emergency fund as it puts your mind at ease and protects you from financial troubles. A comfortable range is mostly 3-6 months of expenses.
c) Save for big purchases
Thinking about significant expenses such as making a down payment for a house or a car loan can be overwhelming. However, saving for it makes more sense.
Start by calculating the amount you need to keep each month to reach your goal. You can try the 50/20/30 rule. Spend 50% of your earnings on necessities, 20% on savings and debt payments, and 30% on lifestyle choices.
d) Save for self-development
Self-development enhances your physical and mental health. Set a specific goal on what you want, for example, a seminar. Automatically save after being paid and spend less. Investing in yourself is one of the best decisions you can make.
4. Pick the correct account
There are several options when choosing a savings account. Choose the most suitable account depending on your goals and with the following factors in mind:
a) Short-term saving
Short-term saving is mainly for money you need at a specific time. These are typically investments you make for less than three years, for example, a wedding or down payment for a house.
Find banks that offer high-interest rates for savings accounts. Also shop around for Certificate of Deposit (CDs). A CD is a financial product offered by most banks and credit unions. It provides an interest rate premium for leaving your deposit untouched for a predetermined period.
In the current low interest rate environment, an investment account such as a Tax-Free Savings Account (TFSA) is a great choice. You can turn taxable income into tax-free income by creating a tax-efficient investment portfolio. Doing this allows you to maximize your investment growth.
b) Long-term saving
You can use a long-term savings account to save for big purchases, retirement, or even college. It’s money you don’t expect to use in the near future. Looking at the interest rates, potential returns, or fees of different long-term savings account options can help you choose where to keep your money. Great options include self-sponsored retirement plans such as the 401(K) in the United States, Registered Retirement Savings Plan (RRSP) in Canada, and a high-yield savings account.
5. Make saving money automatic
One way to make saving easier is saving automatically. Any amount of money you need to save is deposited into an account before you start worrying about how much remains for expenses. Automatic deposits into a savings account take out the need to think about it. That makes it easier to reach your goals. You’re also less likely to spend your money on unnecessary expenses when your savings are automatic. All your saving goals stay on track.
6. Keep building your financial literacy
Financial literacy is critical. You’ll learn how to manage your money with more confidence and learn how to prevent and manage financial issues. It would be best to keep improving your financial literacy to equip yourself with knowledge and skills to continue saving efficiently. Your savings strategy won’t have a solid foundation. It helps you understand how checking accounts work, avoids debt, creates a proper budget, and how a credit card works. Financial literacy is vital now since corporate pensions have been disappearing over the years and investment options are more complex. As a consumer, you need to decide between different investments and savings products. The choices you’re supposed to choose from offer different interest rates as well as maturities. Various ways to increase your financial literacy include:
- Enrolling in courses
- Reading publications
- Listening to podcasts
- Keeping a budget
- Utilizing social media
- Consulting a financial professional
7. Track your progress
Tracking your progress while saving pushes you to continue saving more. It enables you to keep your eye on the prize and celebrate your wins, increasing your motivation to continue saving.
You can also identify problems and figure out immediately when you’ve stopped making enough progress towards your goals.
When you keep track of your progress, you’re most likely to reach your goals faster because you’re paying more attention to your spending habits.
It is easy to track your progress using a savings tracker; you can make one independently or use online savings trackers.
What is the 30-day rule?
The 30-day rule is a simple one: if you see something that you like and you want to make a purchase, you wait for 30 days before purchasing the item. If after 30 days you still feel like you need to buy whatever it is you want, go ahead and make a purchase. However, if after 30 days you forget it or realize it’s now irrelevant, you don’t need to buy it. The Money you would have spent goes towards your savings, and you end up saving more than you spend.
What are five easy ways to save money?
You can easily save money using these five ways:
1) Create a budget and follow it; it is one of the most straightforward money management tips you can use.
2) Set clear goals on the amount you want to save
3) Set up an automatic transfer
4) Use a separate savings account
5) Track your progress
How much should I save each month?
Many different sources suggest that you should save 20% of your income each month. There is the popular 50/30/20 rule that’s effective. It states that you should take 50% of your income and spend it on essential things, such as rent and food. 30% should go to individual spending, and you should place 20% in your savings.
Saving Money vs. Investing Money
Although you might not accumulate a lot of wealth over the long run with saving, it is the first step to successful investing. The main difference between the two is the amount of risk. Saving money is when you put money in a savings account. You don’t have to deal with a high risk of losing your money, but then you don’t get a lot of gains. When investing, you have the potential of accumulating more profits, but there’s also a potential risk of loss. You have to carefully review your goals when considering how to balance both options to maximize your wealth. The purpose of saving is to keep money safe. However, when investing, the goal is to make money.