Even if you have the best intentions to start saving, it is likely that you won’t start to put anything aside until you draw up a concrete plan of action. What’s more, you also need to ensure you can stick to it.
The following are a few of the key elements of any savings plan, all which should help you to save money:
Set realistic savings goals
Establishing goals to work towards makes it much easier to work out your next move with regards to your finances. Short-term goals such as saving for a car or a three-piece suite are obviously going to be simpler than longer-term ones like buying a house or saving for your retirement, but you should approach them all in the same way.
Reach your targets by:
- Sorting debt problems out first
- Setting a time-frame – be realistic yet exact
- Working out how much you will need to save per week or per month to achieve your goal
- Getting a handle on your spending – keep receipts, be organised and be detailed. You can then work out how to cut down on spending and re-allocate the funds to savings
- Making a budget
Reassess
Once you’ve paid off your debt and cut your spending, you may need to reassess your goals to see if you could be saving more. Conversely, you may find that you’ve not been doing as well as you’d hoped, so you may have to change the time-frame for hitting your savings target.
Reassess your savings goals. Subtract your expenses (the ones you can’t live without) from your take-home income (i.e. after taxes have been taken out). What is the difference? And does it match up with your savings goals? Let’s say you’ve decided you can definitely get by on $1500 per month, and your paychecks amount to $2300 per month. That leaves you with $800 to save. If there’s absolutely no way you can fit all your savings goals into your budget, take a look at what you’re saving for and cut the less important things or adjust the time-frame. Maybe you need to put off buying a new car for another year, or maybe you don’t really need a big-screen TV that badly.
Make a budget. Once you’ve managed to balance your earnings with your savings goals and spending, write down a budget so you’ll know each month or each paycheck how much you can spend on any given thing or category of things. This is especially important for expenses which tend to fluctuate, or which you know you’re going to have a particularly hard time restricting. (E.g. “I will only spend $30 a month on movies/chocolate/coffee/etc.”)
Stop using credit cards. Pay for everything with cash or money orders. Don’t even use checks. It’s easier to overspend when you’re pulling from a bank or credit account because you don’t know exactly how much is in there. If you have cash, you can see your supply running low. You can even bundle up the predetermined amount of cash allocated for each expense with a label or keep separate jars for each expense (e.g. a bundle/jar for coffee, another for gas, another for miscellaneous). As you pull money from a jar for that particular expense, you’ll see how much remains and you’ll also be reminded of your limit.
If you need to have credit cards but you don’t want the temptation of having them available to use day-to-day, restrict that section of your wallet with a note or picture reminding you of your savings goals.
* Credit cards are not inherently evil; it’s all about your self control. If you use them responsibly (i.e. completely pay them off every month), you can benefit from them. But the reason most credit card companies make money, however, is because people end up spending money that they don’t have. Unless you are one of the people who can religiously pay off the balance in full every month, you’re better off foregoing the promotions that credit card companies use to lure you in (cash back, introductory APR, airline miles, and so on).
Open an interest-bearing savings account. It’s a lot easier to keep track of your savings if you have them separate from your spending money. You can also usually get better interest on savings accounts than on checking accounts (if you get interest on your checking account at all). Consider higher-interest options such as CDs or money-market accounts for longer savings goals.
Know where your money is. And how much of it, too. If you accidentally overdraw your bank account, you will incur hefty bank fees; worse yet, the place you paid with that check may slap a bounced check fee on top of that, and send the check in again, resulting in a second overdraft fee from the bank! So just a few cents missing to cover that check could result in over $100 in fees. To avoid that, you should always know how much money you’ve got in your account(s), so you never cut a check for more than what you have.
* Look into checking and savings accounts that pay interest. Also, consider CDs (certificates of deposit) for longer-term savings with low risk.
Pay yourself first. Savings should be your priority, so don’t just say that you’ll save whatever is left over at the end of the month. Deposit savings into an account (or your piggy-bank) as soon as you get paid. An easy, effective way to start saving is to simply deposit 10% of every check in a savings account. If you get a check or sum of cash, say 710.68, move the decimal point one place to the left and deposit that amount: 71.07. This works well and requires little thought; over several years, you’ve a tidy sum in savings. Over decades, you’ll be a millionaire.
* You can set up an automatic transfer from your checking account to your savings account.
* Many employers allow you to deduct savings from your paycheck. The money is directly deposited in your savings account so you never even see it on your paycheck.
* You can also have investments for retirement taken directly out of your pay, and the taxes may be deferred with this option.
