Saving money and working for a target are never easy tasks to solve. You will have to fight some psychological obstacles to get there, whether you're saving for a home, your first ride, or a holiday. We are almost hard-wired to be terrible at saving money, it turns out. Everybody struggles to do the right thing and build up savings, whether it's our desire for instant gratification, fear of losing out or digital envy.
It's such a challenge that literally thousands of online articles explain all sorts of ways to save money, from "quick and easy" to "effective and simple," but how do you understand what's right for you? How do you know what a practical way for you to save money would actually be?
Follow these five practical ways of saving money, and you'll be on the right track to create the nest egg that you've always dreamed of, save for college tuition for the boy, or take that long-awaited trip to Bali.
Find Out How to Use Your Cash Now
The first step to saving money is to find out how you are spending your money today at the moment. If you do not have a good idea of what is going on at the moment, you can't prepare for the future. It's an excellent way to find out where you want to be down the road and where you may have any "blind spots" in personal finance to get a snapshot of where you are now.
Blind spots involve items like paying bills reactively instead of reflecting on and saving for them and paying them proactively. We can alter the psychology around our spending habits by preparing for our bills rather than reacting to them and feel more in control of our finances, rather than letting it control us.
Maybe you're going to fall into the "That'll never happen to me" camp? We all do in some ways, and no one wants to think about or plan (or save, as it turns out for the worst. According to a new survey by Bankrate, almost three out of ten households do not have an emergency fund at all. Although one in four has a rainy-day fund, most of those savings may not have enough to cover living expenses of three months' worth, the sum suggested by leading experts.
Stuff like monthly subscriptions you never use or the smoothie you still get after your workout at the gym, you might even be oblivious to little things that bleed your savings accounts dry. These small items will cost you in the long run, usually adding up to less than $30 per month. As this Business Insider story points out you'd end up losing $1,100 a year if you had three $30-per-month subscription packages that you didn't use. That's the money you could spend on your dream holiday or your 4011 (k).
There are plenty of resources out there to help you get a hold of your finances and give you a better picture of how your money is being spent today. For monitoring expenses, you can opt to use online resources like Personal Capital, Mint, or You Need a Budget. The old-fashioned way, you can also do it and literally write down anything you spend. To get a clear handle on where you may have a financial blind spot, it's best to monitor your expenses for at least a month. You will move on to the next (generally dreaded) stage once you have a snapshot of how you spend: making a budget.
Create a Budget Schedule and Stick to it (Don't use the term 'B'!)
This one was probably pounded into you by your parents the same way they insisted that you eat your vegetables. That's probably why it's so bad for most of us.
Many claim that the feeling around the word "budget" is on par with the way we feel about terms such as "dieting." To us, it brings up concepts of constraint, suffering, denial, and eventually deprivation. So how are you dealing with these negative connotations? Experts recommend that you change your outlook on the issue.
For one, know that it will boost your physical health and well-being to stick to a budget and keep your financial house in order. A 2018 study by LendingClub found that the happier you were financially, the better you felt physically, the closer financial and physical health were related.
The definition of a budget can also be reframed: Think of it as a "spending plan" instead of some odious constraints you are supposed to obey. A variety of psychologists say that it will help you work with your innate tendencies rather than fighting them by reframing the way you think of a budget.
In its elementary level, the fundamentals of a spending plan deal with cash in and cash out. You should adopt the well-known 50-30-20 rule to establish a balanced spending plan. This rule requires 50% of your income to go to your desired needs (housing, food, transport, etc.), 30% of your desired income (fresh clothing, new shoes, a new lawn mower), and 20% of your savings and debt reduction income. A budget or spending plan will make this kind of balance more palatable for your brain and your life.
Pay off the debt Pesky (and Then Stay Out of Debt)
It's no secret that debt is everybody's problem. Consumer debt surged to new highs in July, and the total credit card debt per household was $8,402 in May of 2019, according to The Balance. That isn't a small burden to bear.
There are several ideas and advice on the best way to pay off debt, and interestingly enough many of them have snowy connotations. There are the "snowball technique" and the "avalanche technique," as well as many other debt relief strategies that gamify payments to make it easier for individuals to pay off.
Tackling the debt that holds the highest interest rate first is the easiest and most reliable way to pay off debt. Typically, that means first tackling credit card debt. Do your research and, starting with the highest rate, list your debts by their interest rates. Bankrate indicates that before you even start tackling savings, you steer up to 20 percent of your revenue to pay down especially egregious credit card debt. This makes sense in most situations, because you are having to pay out more interest on the mortgage than you will gain by saving money.
When your debt has been paid off it's time to try to stay away from those deadly credit cards. Do your best to work and keep credit card expenses down within your household means. If you spend on a card, pay it off as soon as possible-do not just pile up the total amount due. As a guideline, use your spending plan and stick to it.
Set a reasonable target for savings and "pay yourself first"
Setting achievable targets for yourself and your family and always paying yourself first is one of the main ways to ensure that you can succeed in saving.
Choose something that you feel inspired to save for, to set a reasonable target. It can be a house purchase, sending your child to college, buying a cruise, or just taking a break. Whatever it is, study just how much you would need to save in your set amount of time to achieve that goal. Put a strategy in place to slowly step closer to your target once you know how much money you need.
Your strategy should involve something that is called the "pay yourself first" approach by personal finance and retirement experts. This approach is an automated savings form in which you directly route a portion of your paycheck or salary to a savings account or other investment account. You don't have to worry about it because it automates the savings, and the balance will steadily expand towards your target.
Gamify Your Savings: Use the 10% rule
Gamification, or adapting game-playing rules to real life, is not a mystery that can change real world outcomes. There is proof that gamifying savings also works well. You can download a number of applications that play into this concept and help you save. But if you're not interested in playing a game of savings, maybe the 10 percent rule works for you.
The 10 percent rule notes that the goal is to keep 10 percent of your income in a savings account per month if you are not sure exactly how much to save. You can still ensure that you live within your means and put aside cash that will help you get closer to your savings goals by striving (and understanding that it's okay if you don't always reach it for 10 percent.
By following these five money saving tips, you'll be able to achieve your savings goals and provide you and your loved ones with a healthy and stable future.