To save money is essential to building wealth and giving you a sense of security. In order to save money, you need to spend less than you earn.
For many, this is often easier said than done, especially when you have to give up things you really want. However, when you are mindful, there are plenty of ways to begin saving money whatever your age or income level.
Here are some tips which can help learn to save money.
Create a plan
When considering how much to save, the first step is to set short-term and long-term goals for yourself. Your goals will help you establish where you are in your financial journey. Establishing goals will help you know the amount you want to save.
To reach a savings goal, you need to make a budget. Having a plan for your money and being able to track it will show you how much you are spending and where you can afford to save more.
Knowing how much you need
The 50/30/20 rule divides your income into three categories: 50% for needs, 30% for wants, and 20% for savings and debt repayment. Using a 50/30/20 calculator can help determine how much of your finances need to go into these categories.
Needs = 50% of your income: Necessities are the expenses you can’t avoid. The portion of your budget should cover costs such as: housing, food, transportation, insurance, basic utilities, etc.
Wants = 30% of your income: Knowing the difference between needs and wants can be difficult. Generally, wants are the extras that aren’t essential to living or working. These may include monthly subscriptions, travel, entertainment, meals out, etc.
Savings and Debt = 20% of your income: You should devote this part of your income to pay down existing debt and create a comfortable cushion to avoid taking on future debt.
Telling yourself how much you want to save isn’t a goal. You have to know what you are saving for, how much money you need to save, and when you need it. You can use one of these methods to create boundaries around saving.
- Create a separate savings account for each goal.
- Use one savings account for all goals and track using: an Excel spreadsheet, a financial tracking app, or a financial planner.
Make the most of your money
You can also find new ways to save money by
- Eating at home instead of going out to restaurants
- Start paying your credit cards off on time and in full each month. The interest charged can add up when you carry a balance.
- Applying the 24-hour rule to impulse purchases
- By shopping online, you can check prices against other retailers and find the best deals.
Options like these can help you save money and get you cash back when shopping online or using your card.
Develop healthy habits
You should figure out your needs and how much they cost before figuring out how much you need to save. Directly depositing money from your paycheck into a savings account and your 401k, allows you to build wealth, and create healthy saving habits.
When shopping, plan your purchases to avoid coming out with more than you went in to spend. Make a list of exactly what you want to buy, and how much you’re going to spend. This way you can stick with your list and be less likely to make impulse buys or get things you don’t need.
Some banks offer additional incentives to reward you for good saving habits like higher APY, and cash bonuses for depositing a certain amount into your account. Setting up automatic deposits from your checking to your savings account can also get you started to building wealth.
If you feel you are low on funds, having a side job can give you the extra income you need to boost your savings.
S.M.A.R.T. Goals is a well-established tool that will help improve your financial self, and make sure you prioritize your goals. By using these steps, you’ll be on your way to becoming a savvy money saver. As you continue to practice healthy savings habits, remember to revisit your goals, and spend more time planning.
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