There is a famous saying, “Little drops make the mighty ocean”. Saving money and becoming financially secure also follows a similar philosophy.
Whether you want to plan to go to college, start a business, or retire in a few years, you need to start saving to achieve your financial goal. Everybody needs to save, whether one has a high-paying job or whether one is trying to get out of debt.
You might think that saving money is not such a difficult thing. After all, you simply have to keep stashing away some money in a safe place right? You may be surprised to know that most people say that they want to save more, but very few actually translate those words into action.
America has a savings rate of less than 5% which is among the lowest in the developed world.
A federal reserve report compiled a few years ago found that about half of all Americans would find it tough to deal with an unexpected expense of $400. A significant chunk of the population isn’t saving for a rainy day.
The consumer culture and heavy media influence that encourages people to spend more might be, perhaps, one big reason for this situation.
Savings is a process. It involves building up multiple funds. The first is an emergency fund, the second can be a retirement fund, and other goal-specific funds like education, travel, etc. complete the list.
Since savings is such an important action and yet seemingly so difficult to put into action, we have listed a few easy ways in which you can start saving.
You do not have to make big bucks to save. You can take baby steps initially. Save $5. Make is a mission that every week, you will save $5 no matter what. You can try and collect quarters and spare change to make up the savings amount. If $5 is too much, try $1.
There are mobile apps that allow you to round up your everyday purchases into a whole number and the difference between that rounded amount and your bill goes into an investment account.
You can also do something similar without an app. Just remember one thing, there are 52 weeks in a year and $5 times 52 is $260. That $260, if invested can turn into more than $1000 in a few years.
The key is to be consistent and regular with your savings.
Expense = Income – Savings
Savings is not income minus expense. In other words, you do not spend your income and then save whatever is left at the end.
You determine a fixed amount that you will save every month and take that out from your income on the day you get your salary.
Then, you spend whatever is left. By following this approach, you will automatically cut out spending money on luxuries that you don’t really need.
Earn more to save more
If you find it difficult to save enough for one of your long-term goals, then you need to find a way to save more.
If the amount of money you need to start your dream business is a big number, then the savings rate also needs to be high enough to reach that number in a few years’ time.
Therefore, you may have to look for a side hustle or a part-time job. Work extra, work longer, but figure out a way to earn more so that the extra cash can go into your savings fund.
Save Away into High Interest Savings Accounts
A savings rate, often referred to as the savings interest rate, is the percentage of interest earned on the money deposited in a savings account, certificate of deposit (CD), or other interest-bearing savings vehicle. It represents the annual return on your savings and is typically expressed as an annual percentage rate (APR) or annual percentage yield (APY).
The savings rate can vary significantly depending on the type of savings account and the financial institution offering it. Generally, savings accounts at online banks or credit unions tend to offer higher savings rates compared to traditional brick-and-mortar banks.
For example, if you have $10,000 in a savings account with an annual percentage yield (APY) of 2%, you would earn $200 in interest over the course of a year.
Savings rates are an important consideration when choosing where to keep your savings, as they directly impact the growth of your money over time. It’s essential to shop around for the best savings rates to maximize your earnings and achieve your financial goals more effectively.
Pay-off your debt
If you have credit card debt or any small loans, then pay them off first. Credit card companies charge ridiculous interest rates which bite a big chunk out of your income. It will be painful initially to pay off the debt in one or two installments.
However, the relief of not paying high installments every month will make a huge difference in your cash flows. The money that went towards your debt payment every month can now go into your savings funds.
Within a few years, those savings can grow into a significant number.
Don’t blow away your gifts and bonuses
You got a higher-than-expected tax refund. So, you go out and spend it at a casino. Or perhaps your work helped your company and you got a bonus. So, you went out to an expensive nightclub and burned through the bonus money in one night. Those were, obviously, not smart choices.
Sure, it is not a crime to treat yourself once-a-while for the hard work that you did, but gifts and bonuses are excellent opportunities to boost your savings.
Do not lose the chance to take advantage of such opportunities. Use your windfall money judiciously.
At the most, spend a small portion of it on a treat and transfer the rest of the money to your savings or investment account. That money will grow into something significant over time – definitely more significant than the short-term thrill that you get at a casino or a nightclub.
Set realistic goals
Do not think that saving $100 every month will make you a millionaire in 5 years. Be realistic with your money.
Set a realistic savings goal based on your income and financial situation and then stick to the plan.
If you set a goal that is way too ambitious, then you are almost setting yourself up to fail. And when things do not work out, you will lose the motivation to save.
If you cannot save a lot, then focus solely on building an emergency fund that can last for 6 months or more. Then, once that is accomplished, you can move on to bigger goals.
By that time, you will probably be earning a higher salary as well to save higher amounts. Take small steps and keep it simple.
Stay healthy and strong
We talked a lot about money. But, there is one more thing that most financial planners do not talk about – your health.
You will be able to enjoy your savings only when you are healthy. And you will be able to save consistently only when you are mentally strong.
So, relax, eat well, exercise well, and stay determined. Getting to your goal by saving requires patience and dedication. But eventually, you reach your goal.