How often have you thought about what you would do if you had more money?
If you’re waiting to win the lottery or find a long-lost benefactor, you’re missing out on the savings you could be seeing right now. By implementing some simple changes in your life, you can start saving your money every day of the year.
What are your money plans? Whether you’d like to reduce debt or save up to buy a home, it’s helpful to have some guidance and goals. By being proactive with your everyday and long-term financial management, you’ll be able to cut back on spending and ramp up your savings.
Saving Money Basics
Create A Budget You Can Live With
If you want to increase your savings, it’s necessary to have a budget. This doesn’t mean that you have to go cheap when you spend money, it just means you need to spend money where it counts. Make a goal to always spend less than you earn.
The first step in calculating a working budget is knowing your income and comparing it to your expenditures. Look through your bank and credit card statements and any receipts to get as accurate a number as possible. Where does your money go? Are you spending half of your income on entertainment? Just cutting this number in half and instead, adding that amount to savings can help increase your funds without sacrificing your fun.
How to Design Your Budget
Break your budget into three parts: your necessities, your wants, and your savings. Necessities are often non-negotiable expenses like housing and utilities. Wants include things you don’t need to survive, like dining out.
When designing your budget, be sure to include your savings; it’s an essential part of your budget.
Half of your income will probably be needed for necessities. The other half can be divided between your wants and your savings. The goal is not to live without the things want, but just to be more conscious about how you are spending your money.
Your budget will change as your situation changes, but think of it as a map to savings – there may be shortcuts here and there, but you’ll eventually get to where you want to go if you stay on track.
Take Charge of Your Money
Keep a close watch on your money. Take the time to check account balances and activity on a regular basis. That will help you understand how much money you are spending and where it is going. If you notice a trend in unnecessary spending that drains your account or that increases your debt, you can make changes in your spending habits. Or, if you notice that your savings are growing you will be motivated to keep going.
Take money management seriously. Besides finding ways to save you will also be able to see any errors or fraudulent activity before it spirals out of control.
Should You Carry Cash Or Cards?
Let’s face it, credit and debit cards make spending easier. How many times a week do you rely on your credit or debit cards to make purchases?
Money management can be simplified if you get in the habit of only spending what you have. Use cash for purchases, as it will limit what you can spend; if you have $20 on hand, you can’t buy more. That’s an easy way to stick to a budget.
This doesn’t mean that you should delete your credit card accounts, they can be great for emergencies and other situations. Instead of using them on a regular basis, put your credit cards aside and pay off any existing debts. Aim to pay off your card every month as part of your necessities, which means never spending beyond that amount at a given time.
Find Alternative Saving Options
The harder it is to get to your savings, the harder it is to spend it. While it’s always a good idea to have a small emergency fund easily available, consider putting some of your savings into certificates of deposit (CDs). These are time-based savings vehicles. You will have to pay penalty fees if you take your money out before maturation. Your money will grow based on the CD’s interest rate, and you can keep rolling your money over into new ones when they mature.
Money market accounts typically offer a higher interest rate than regular savings accounts, but you’ll need to meet a minimum balance and may be held to withdrawal regulations.
Build A Solid – and Secure – Savings Fund
Do you have a dedicated savings account? Are you contributing to it regularly, or just when you remember? Setting up a savings account allows you to automate your contributions so you save without even thinking about it. Take the automatic transfer approach – set up your checking account to feed small amounts to your savings. If you are paid via direct deposit, see if your employer will allow you to split your money between multiple amounts. Another way to build your savings is to put extra change into a jar or other container and when the jar is full you can deposit the coins into your savings account.
When your checking account is tied to your savings account, you make automatic transfers easier, but you also have more temptation to overspend. If your savings account is at a separate bank, you won’t see your balance every time you log in to your checking account which means it can grow in peace.
Don’t forget to add to your savings account if you receive any large amounts of money that aren’t tied to your income. For example, put all or most of a tax refund or annual bonus into your account to avoid splurging with it while getting you closer to your goal.
Use Retirement Plans
The Social Security Administration (SSA) reports that a whopping 39% of workers have no savings for the retirement set aside. See if your employer offers a 401k or similar program that allows you to contribute pre-tax money, reducing your taxes and increasing your savings. Many employers will even match the amount you contribute, doubling your impact.
When you get a raise, add all or most of that to your savings by increasing your retirement contributions by that amount. You’re reaping tax benefits, and you’ll be putting your money to work more than you would in a primary checking account.
If you don’t have access to an employer-sponsored retirement account, consider individual retirement accounts (IRAs) which give you the same tax benefits. Your account should be FDIC insured so that you aren’t subject to loss of your principal. As with other retirement plans, you typically can’t take out money until you reach a certain age or you’ll be liable for tax and withdrawal fees.
Save For Specific Events And Purchases
Saving for a home? Planning a wedding? Need a new washer and dryer? Whatever your bigger goals are, dedicate specific savings for these plans so that you aren’t depleting your primary account. When you have a specific goal you’re working towards, it will be easier to find ways to set money aside.
Keep your goals both short and long-term. If you don’t already have an emergency fund, make that your top goal and aim to be able to cover between three and nine months of expenses. However, it’s also important to remember your long-term expenses, like retirement or education needs of children. You don’t need to open a new account with your bank for each of these goals, just try and setup sub-account names if you can, or keep track of your progress through your own system.