Saving Money: Are you finding it hard to save money? Or, you always hope to have a little left over at the end of the month but it is not possible? If yes, then please pay close attention to this article.
It is pertinent you know that saving money is important if you want to accomplish your long-term financial goals.
These goals might include; paying off high-interest credit card debt or student loans and building an emergency fund. It might also include reaching big milestones like buying a home.
Importance of Saving Money
The following are some of the importance of saving money;
- It gives peace of mind.
- Helps you expanded options.
- It allows money work for you.
Reason for Saving Money
It can also provide a safety net in case of an emergency.
Here are Some of the Reasons we Save:
One of the reasons for saving money is to guide against emergencies. This could be any number of things: a new roof for your house, out-of-pocket medical expenses, or sudden loss of income.
You will need money set aside for these emergencies to avoid going into debt to pay for your necessities.
If you intend to retire someday, you will probably need savings and/or investments. They are to take the place of the income you will no longer get from your job.
Average Life Expectancy
Another reason for saving money is because of average life expectancy. With more advances in medicine and public health, people are now living longer and needing more money to get by.
The costs for private and public education are rising every year. Thus, it is getting tougher to meet these demands.
Without money put away in savings and/or investments, you open yourself up to other risks. Not having enough money to pay for emergency dental care may force you into taking a loan.
Simple Steps and Tips of Saving Money
Map Out Your Goals
When saving money, one of the simple steps and tips to take is to map out your goals. You do not have to do anything other than spend some time day-dreaming. What would you like your life to look like next year? In five years? In 20 years? Do you want to pay off debt?
Write down each of your goals. Then estimate how much money you will need to accomplish each goal.
Having a clear idea of your financial goals is important because it will give you something to work towards. It will motivate you to save when you would rather spend money. It will also help you figure out how much you need to save each month to accomplish the things you want to do.
Figure Out Your Current Monthly Spending
You cannot know how much you need to cut back if you do not know how much money you are spending. Take a look at your credit card statements, checking account statements, and cash receipts to get an idea.
If your spending is higher than you imagined, perhaps you can identify areas where you are spending recklessly. Determining where you regularly over-spend is key to figuring out where you can start cutting back.
Set Monthly Budgets
Another step or tip to saving money is to set monthly budgets. You have to divide your take-home income into three separate pools of money. These pools are:
- Necessities budget.
- Savings budget.
- Fun money budget.
Other Simple Steps and Tips for Saving Money
- Save windfall income.
- Collect loose change and deposit it in the bank.
- Try frugality.
- Break a habit.
- Save lunch.
- Have a “buy nothing week”.
- Compare costs of major items before purchasing anything.
- Use coupons
How to Create a Necessities Budget
To create a necessities budget, start by adding up your non-negotiable obligations. These obligations are; rent or mortgage payments, auto insurance premiums, gas (or public transportation). As well as, utilities, and anything else you need to pay for every month.
Please note that these are expenses you absolutely cannot do without. As such, include money for grocery shopping here, but not for take-out food.
For budgeting purposes, subtract this amount from your gross (i.e. after-tax) income. If it is less than half of your current income, great! If it is more than half, you will need to make adjustments.
How to Create a Savings Budget
The 50/30/20 rule suggests you think about your savings budget last. However, putting it before your fun money budget is a way to ensure you make your future goals a priority.
Make sure you subtract both this budget and your necessities budget from your monthly cash flow. This is to help you know how much you have left over for your final budget.
How to Create a Fun Money Budget
After taken care of your necessities and savings budgets, decide what kind of fun things you want to do with the rest of your cash. You could use this money for dining out, shopping, or anything else not considered a “need.”
Also, add up the money you are spending on things that fall into this category. If this amount is more than 30% of your after-tax income, you might not have enough to meet all your spending goals.
If the amount you are spending is less than 30%, you are in good shape. You can enjoy it now, but you also should consider creating a new savings goal.
Saving Money Each Month
If you did not have enough cash flow to fulfill each of your three budgets, this is what to do. Make some changes to your spending so that you can stay on track.
Also, follow these simple steps in saving your money monthly;
- Rent a cheaper apartment.
- Refinance your mortgage.
- Bundle your insurance.
- Choose Netflix over cable.
- Write down your shopping list before hand.
- Switch cell phone providers.
- Comb your credit card statement for grey charges.
- Work out at home.
- Use the library.
- Freeze meals.
- Choose generic over brand-name.
- Make extra money.
In a Nutshell
Saving money may appear difficult some times, but following the above steps will make it simple.
Creating a budget and finding ways to save money might seem complicated, but it is not. It is really as simple as sitting down to think about your long and short-term goals.
Changing your spending habits may not be possible but can be managed. Having a clearer picture of what you want to achieve can help you better keep track of your progress.