how to save money
Whether you are hoping to pay off debt, looking to purchase a new home, or planning for retirement, we all have reasons to save money! Unfortunately, it can seem like an overwhelming task at times. Many people are unsure about how to get started, and once they start making progress, another unexpected expense comes out of nowhere!
Luckily, there are ways to make the process easier. Check out these tips that will help guide you along your path to financial wellness!
track your expenses
It’s hard to create an effective savings plan if you don’t have a decent understanding of your spending habits. Tracking your expenses is the most efficient way to gain this knowledge. To get started, first look through your monthly statements- this includes all your checking accounts and credit cards. You'll begin to identify what is coming in and what is going out from here.
Once you have this information, it’s important to categorize your expenses. This could be into groups like household items, bills, or restaurants. Whatever works for you! Just make sure the numbers are accurate, and you don’t leave any expenses out.
This process is essential because it will allow you to see the areas where you are potentially overspending. You might notice that you collectively pay more for monthly subscriptions than you would like. Or maybe you are purchasing new clothes too often? Whatever you might uncover, the easiest way to get the information is from tracking.
pro tip: Make tracking less time-consuming by taking advantage of a free tracking app! Most apps are designed to connect to your checking accounts and automatically categorize your purchases
set your goals!
Establishing financial goals is a necessity if you are trying to save money. They can help you gain perspective on why you are saving money in the first place. They will also make you more intentional about your purchases. For instance, spending $100 a week on take-out food is easy if you’ve never considered how else you could be spending it. However, if you’ve decided to save for a vacation or pay off a credit card, you would likely pay closer attention to how you’re using your money.
It's essential to know why you should be setting financial goals, but how do you know if they will be effective? Luckily, there are a few tips you can use to ensure that they will be! These include:
- make them specific. “I want to save money” is a statement-not a goal, and it’s too vague to be effective. Instead, you could be saying, "I want to save money for…”. Keep in mind that your goals aren’t always going to match someone else's. Just because your friend is saving up to purchase a new home doesn't mean you should be. Make sure you are creating goals that are specific to your financial needs.
- make them measurable. Let’s say your goal is to save money that you can put towards a new car. How much are you going to need to be saved to achieve that? If you don't have an answer, your goal isn’t measurable. You should always have an amount in mind when considering your financial goals. This will make it easier for you to stay focused and prioritize your spending.
- give yourself a deadline. “Someday.” is not going to cut it when setting your goals. You'll be much more likely to stay on track if you work within a specific timeframe.
Now that you have a better understanding of financial goals, what does that look like?
“After looking through my finances, I have decided that I am ready to save $12,000 to put towards a new car in 1 year.”
Perfect! That has all the elements of a practical financial goal. It is clear, specific to your needs, and attainable.
pro tip: Write down your goals and hang them somewhere you will see them often. This will keep them fresh in your mind and help you stay on track. Or, if you'd prefer a more constant reminder, you can take a picture of them and set it as the background on your phone!
create a budget
Budgeting is an essential part of saving money. Simply put, a budget is meant to show you how much money you make compared to how much you spend. It's also a helpful tool that can help you allocate the appropriate amount of funds between your fixed and variable expenses.
- what are fixed expenses? These are monthly bills that are constant and not going to change often—for example, your mortgage, auto insurance, phone service, and so on.
- what are variable expenses? These are much more flexible expenses and can be changed from month to month. These could include dining out, monthly subscriptions, entertainment, and more.
Your fixed expenses are always going to be your top priority. These are the bills that need to be paid first each month. It’s within your variable expenses that you can begin cutting costs if necessary. Consider our example from above. If your goal is to save $12,000 in a year, you will need to save $1,000 every month. Is that manageable with your current spending habits? Or are you going to need to rework some things? That’s why having a budget is so important; it keeps you organized!
One thing to keep in mind when constructing your budget is that it will likely change each month. For example, you might decide to focus less on saving one month because of an upcoming birthday or vacation. Because of this, it’s a good idea to adjust your budget at the beginning of each month. Keeping a calendar of your events will simplify things and prevent unanticipated expenses from sneaking up on you!
pro tip: Accidents happen! This is why it's always a good idea to include an emergency fund into your budget each month. That way, you won't be hit as hard financially if something comes up, such as unexpected car repairs or house damage.
Once you’ve established a plan and have started saving, you might be wondering what to do with your additional funds? You can explore many avenues, including savings accounts, money market accounts, and certificates. Learn more about each product below!
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