We all want to save money. But sometimes, setting money aside for savings sounds easier than it is to do. Often, the most challenging part about saving money is to actually get started on it, according to financial experts. However, if we try to be more systematic about saving money and adhering to the simple strategies we’ve set for ourselves, putting money aside should be much simpler to achieve.
Keep a Record of Expenses
The very first step to saving money is to track how much we spend. Keep track of all expenses. Yes, that includes your daily coffee, candy bar, tips, or small newsstand buys.
Organize every detail in categories like transportation, groceries, utilities, etc., and add it all up. You may keep track of these using spreadsheet tools on your computer or mobile apps on your smartphone, or even in a columnar notebook. You may use this information to check your credit card or bank statements.
Stick to a Fixed Budget for Savings
Once you have a picture of your monthly expenses, you can now set workable budgets for each expense category. Doing so sets a limit to your unplanned spending. Have a fixed monthly budget for utilities, mortgage, groceries, emergencies, recreation, and others. Do not forget to take note of major periodic expenses that occur maybe once a year, like car maintenance.
But most importantly, you can now see what percentage of your monthly income can be set aside as savings. Financial experts recommend allotting 10 to 15% of your income to your savings.
Curb on Spending
With your expenses tracker, you can see that putting aside 10% as savings becomes impossible if your expenses are too high, then it’s probably time to cut down on your spending. Identify non-essential expenditures (such as dining out, entertainment, designer coffee, etc.) and start there.
Other areas to look at when trimming down on expenses:
- Entertainment: explore your community for free or affordable events around you. There may be parks or playgrounds that stage open-for-all concerts or shows.
- Subscriptions and memberships you’ve forgotten about: cancel recurring subscriptions you don’t really utilize, such as gym memberships or video streaming services, especially those that renew automatically.
- Dining out: keep the frequency of restaurant dining to once, twice at the most, each month. Better yet, commit to dining out only on special occasions. This includes delivered food from restaurants.
- Impulse purchases: Give yourself a “time out” period whenever you feel tempted to buy something non-essential, such as a new TV, a leather jacket, or a food processor upgrade. Wait a couple of days—you may suddenly lose the desire for it. If it’s still in mind, then you can save up for it.
- Monitor electric and other utility consumption: Fix leaky bathroom fixtures or replace inefficient shower heaters or air conditioning units. Install dimmer switches or set automated shutdown features. Check your refrigerator or freezer temperatures. Consider switching to solar panels for home use to save on your electric bill in the long run.
Set those substantial purchases, investments, or events as goals. Save up for it. This includes a new smartphone, weddings, vacations, college education, or a new home. Figure out how much money you want to spend on it and how long it should take you to save up. Perhaps you’re getting married, planning a vacation, or saving for retirement. Then figure out how much money you’ll need and how long it might take you to save it.
If you’re saving up for your child’s education or your retirement, it might be best to consider putting the money into a 401(k) or an individual retirement account (IRA).
After you’ve written out your expensive goals, work on prioritizing them. This allows you to allocate your income better. When you rank your planned expenses according to priority, perhaps you might even realize that you don’t really need the ones that fall on the bottom rungs. Long-term goals such as education and retirement will always be more important than short-term expenses such as a new phone or overseas vacation.
Decide on Suitable Tools
For your short-term expense goals, you may utilize these FDIC-insured deposit accounts:
- Savings account.
- Certificate of deposit. These offer interest rates typically higher than regular savings accounts, though it means your money is locked in for a fixed period.
For your long-term expense goals, consider:
- FDIC-insured IRAs, which are essentially savings accounts but are more tax-efficient
- Investment plans like mutual funds, which are subject to risks but promise higher investment returns.
Note that you need not pick just one account option. Sift through all options and weigh for the right balance of risk and returns to facilitate your goals.
Review your allocations and track your progress every month. This should help you adhere to your saving goals while also helping you identify and fix problem areas promptly. The more your savings grows, the more motivated you might be to strive for more saving and spending efficiency.