Sometimes the hardest part of saving money is how to get started. With this step-by-step guide, you can learn to develop simple and realistic ways of saving money for your long- and short-term goals.
List Down Your Expenses
First, you need to determine the amount of money that you spend. Monitor all your expenses, including household items, cups of coffee, cash tips, etc. After having this data, the next thing to do is to arrange them by categories, for instance, the amount spent for your mortgage, groceries, gas, etc., then add up the amount for each category. Use your bank statements and credit card to ensure that your numbers are accurate. Include everything and don’t leave anything out.
To help you in getting started, try to search for a free-spending tracker. Using an app can help you in automating some of the work. If you are a client of Bank of America, then you can use the Spending & Budgeting tool for easier budgeting since all your transactions will be automatically categorized.
Budget For Savings
After having an idea of what you need to spend in a month, you can start organizing your recorded expenses into a feasible budget. In your budget, try to show your income against your expenses. In this way, you can manage your spending and restrict overspending. Also, try to include expenses that happen on a regular basis but not necessarily every month, like car maintenance, for example. An effective strategy would be to add a savings category. As much as possible, try to target a savings goal of 10% to 15% of your income.
Search for Ways to Reduce Your Spending
If you see that you have very high expenses and it is impossible for you to save as much as you want, then perhaps it’s time to cut back. Try to determine the expenses that are unnecessary such as dining out, entertainment, etc., and spend less on them. Find ways that you can save on your regular monthly expenses such as cell phone, television, etc.
Here are some recommendations on how to reduce your daily expenses:
- Cancel any memberships and subscriptions that you do not use anymore, most especially those that are renewed automatically.
- Utilize resources including community event listings in searching for free or cheaper events to help you in reducing your entertainment spending.
- Keep your commitment to eating out only once a month and choose places that belong to the “cheap eats” category.
- Allow yourself to have a “cooling-off period”. If you are tempted to purchase nonessential things, then try to wait for a few days. You might be thankful that you’ve passed or are prepared to save up for it.
Get Rid of Your Debts
If you are trying to save money by budgeting but still have a huge debt burden, then you should start eliminating your debts. Have some doubts? Add up all the money you spend in paying your debt every month and you can quickly see how this can affect your financial future. If you are not paying interest for your debts anymore, then you can easily put this money into your savings. The best thing to do is to consolidate your debt with a personal line of credit. This way, there is a better chance that you can pay it off.
Quit Smoking
Ultimately, it is not easy to stop smoking. However, if you smoke one pack or two packs each day, then this can easily add up to at least $3,000 a year. If you quit smoking, then this amount can easily go to your savings. According to the Centers for Disease Control, the number of Americans who smoke cigarettes has decreased and is now less than 20 percent compared to the mid-1960s.
Utility Savings
If you decrease the thermostat on your water heater by 10°F, then you can likely save 3% to 5% in energy costs. Also, setting up a tankless water heater can provide you a savings of up to 30 percent than having a standard storage-tank water heater.
Spend to Save
Obviously, it is almost impossible for utility costs to go down over time. So, you must act now by weatherizing your home. Make an appointment with a utility company and request an appointment for an energy audit. Or you could search for a certified contractor who can provide you with a full home energy efficiency analysis. This can vary from simple enhancements such as sealing your doors and windows, to installing new insulation, Energy Star high-efficiency appliances, etc. This can help you in saving thousands of dollars on your utility costs over time.
Set Savings Goals
If you really want to save money, then you must set a goal. You can start by considering what you want to save for. Maybe you are planning for a vacation, want to get married, or save for your retirement. Try to determine how much money you need and how long it will take for you to save it. A short-term goal is between one to three years. Some examples include vacation, emergency funds, or down payment for a car. A long-term goal is planned for four years and up. This includes remodeling projects, down payment for a home, retirement, or your child’s education.
If you are saving for your child’s education or for your retirement, then you might want to put that money in an investment account such as a 529 plan or an IRA. While investments have greater risks and have the potential of losing money, they can also give you the chance for growth when the market develops. This is ideal if you are planning for an event in advance.
A good piece of advice would be to set a small, attainable short-term goal for something interesting and large enough that you can’t afford to pay in cash, for instance, holiday gifts or a new smartphone. If you can reach smaller goals and you enjoy saving for them, then it can inspire you to save more and make it a habit.
Figure Out Your Priorities
After your income and expenses, your goals will have a great impact on the way you allocate your savings. It is important to consider your long-term goals. Saving for your retirement should not take a back seat so you can give way to your shorter-term needs.
The best thing to do is to know how to prioritize your savings goals. In this way, you will have a clear idea of where you should start saving. For instance, if you have plans of replacing your car in the future, then you could start saving for that now.
Use the Right Tools
If you are saving money for your long-term goals, then you could consider FDIC-insured IRAs (Individual Retirement Accounts). The best thing about FDIC-insured IRAs (Individual Retirement Accounts) is that these savings accounts can save you some tax. Some examples of securities include mutual funds and stocks. You can avail of these investment programs from investment accounts most likely with your broker-dealer. However, you must keep in mind that these securities should not be considered as guaranteed by a bank, not deposits of a bank, and most of all, they are not insured by the FDIC. This means that there are greater investment risks involved such as the possibility of losing your principal.
If you are saving some money for your short-term goals, then you could consider using a Certificate of Deposit (CD) or a savings account. With a Certificate of Deposit (CD), your money will be locked in a fixed period and the rate that is used is usually higher compared to the savings accounts.
It is not required that you should only choose one account. Try to understand each option carefully and consider the important details such as the fees, balance minimums, and interest rates. In this way, you can choose the right combination that can help you in saving for your goals.
Keep Your Savings Automatic
Most banks allow automated transfers between your savings and checking accounts. And you have the option to choose the amount, date, and where to transfer the money. You can even divide your direct deposit so a part of your paycheck will be directly deposited into your savings account.
Setting up automated transfers and splitting your direct deposit are some of the easy ways of saving money since you don’t need to think about it. Typically, this can minimize the temptation of spending your money. The clients of Bank of America can simply set up automatic transfers between accounts by using online and mobile Online Banking, Bank of America clients can easily set up automatic transfers between accounts.
See Your Savings Grow
Each month, try to evaluate your budget and verify your progress. This can help you in sticking to your personal savings plan. At the same time, it can also help you in determining and fixing problems right away. Knowing how to save money can even inspire you to look for ways to save and reach your goals faster.
If you need some advice and tips in saving money, then Money Mgt Inc can help you. For more details and information, you may call us at 601.990.2102 or send us a message at jmckennon@virtuecm.com.
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