The ability to save money is one of the most fundamental components of having a strong financial profile, both in the short and long term. With consistent saving habits and a healthy amount of money stored away, you may have the means to guide your future in all sorts of directions. Maybe you want to go back to school, start a business, or invest in the stock market. Your savings – and understanding how to save money in general – can help you do these things.
But having a healthy savings account isn’t just important to your long-term well-being. It can also help you handle hurdles that may come up in the short term. For example, your savings, and more specifically your emergency fund, can help you deal with an emergency expense.
The most important question still stands though: how do you save money in the first place? For some people, finding the room for savings in your budget when money is tight may seem like an impossible task. For others, the idea of saving is completely foreign to them and they may not even know where to start.
To help shed some light on these issues, we’re going to try to break down how to save money in simple terms by answering some important questions surrounding this topic, and then giving you some personal budgeting tips that may help you find some extra room in your budget.
Important Questions to Ask About Saving Money
Before we dive into specific tips and tactics that may help you save money, we’re going to try to answer some important questions about saving money to help give you a better understanding of the process in general. Let’s get started!
Is Investing Money and Saving Money the Same Thing?
Let’s start with the simple answer to this question: no, they’re not. While they both play an important role in your life, there’s a big difference between the two, and understanding these differences can have an impact on your long-term financial profile.
The idea of saving money is to put your hard-earned cash into accounts that have a very safe profile and can be accessed relatively easily in a short span of time.
On the other hand, when you invest your money, you’re buying an asset that you think will grow in value in the long run and give you a good return on your investment. This could be things like stocks, real estate, bonds, and more. The value of these investments may go up and down over the years, but the idea is that they’ll provide a healthy return in the end.
While a lot of the different ways to save money can be relatively straightforward, investing your money may seem a little more daunting and out of your depth if you have no experience with it. Fortunately, your bank or other financial institutions can manage your investment portfolio, so you don’t have to.
How Much Money Should You Save?
Even if you already have some creative ways to save money in your back pocket and feel confident in your ability to implement some healthy financial habits into your life, it’s still important to know how much money you should be saving.
While the general ethos of “the more savings, the better” may be true in a general sense, there are still a lot of variables that come into play when it comes to putting that into tangible terms. You’ll need to consider things like your income, the cost of your rent or mortgage payments, any outstanding debt payments from installment loans or lines of credit, and your general lifestyle.
While you’ll have to consider all these factors and take a look at your budget to figure out how much you can and should be saving, when it comes to building your emergency fund (which should be one of your first goals when it comes to saving money), the general prevailing thought is to have around six months’ worth of living expenses saved up. Keep in mind that this number can vary depending on your household.[1] While you won’t get to this number overnight, with responsible spending and savings habits in place, you may get there over time.
Should you Focus on Paying Off Debt or Saving Money?
If you’ve got a mountain of debt to deal with, this can feel like a big hurdle in your quest to save money. The key is to try to assess what type of debt you have and balance this with your savings goals as best you can.
When you’re trying to make the decision of whether to contribute to your savings or pay down your debt, it may be a good idea to start with any outstanding high-interest debt you may have. The interest you’re paying on this can have a big impact on your ability to save, so it may make sense to pay this off first. And if you have even an extra $25 to $50 left over at the end of each month, you can start to put this towards your savings so you may not need to solely rely on your credit card if you run into an emergency expense.
If you have any low-interest debt, it may make sense to split your debt and savings payments a little more evenly between the two. The key is to assess your financial situation and find a healthy balance that’ll help you save money without handcuffing you in the end.
4 Tips to Help You Save Money
Now that we’ve answered some of the important questions around the topic of how to save money, it’s time to dive into some tangible ways for you to actually start the process!
1. Don’t Spend More Than You Make
This may seem like an obvious one, but this is one of the most important components of saving money. If you spend more money than you have coming in, you’re going to have a hard time saving money at all. Let’s take a look at simple example to illustrate this.
Let’s say you get paid on a daily basis and you make $150 in a day, but you spend $175 that same day. In order to take care of the extra $25 you’ve spent, you use your credit card. But unfortunately, the money you’ve borrowed comes at an extra cost in the form of interest, so now you’ve created debt. If you keep this habit up, eventually you may sink deeper and deeper into debt.
Let’s double down on this example and say that you’re only able to make the minimum payments on your credit card, which means that the interest you’ll need to pay will continue to grow. In the end, you’ll likely be paying much more than the amount you borrowed in the first place. So, as you can see, spending more money than you make can put a real wrench in your savings plans! Do your best to track your income and your spending, and make sure you set some healthy spending limits.
2. Pay Yourself First
This is a relatively common technique that you may see on any list of ways to save money. The simple version of this concept is to make sure you take a certain amount of money every time you get paid and put it towards your savings before you put any money towards bills or other expenses. While it may be tough to do if money is tight or if you have urgent financial needs, do your best to make this a habit even if you’re only putting a small amount of money aside.
If you do run into emergency expenses that need your immediate attention and you don’t have the savings to cover them, you may want to look into an emergency line of credit. These loans can act as a safety net in case of a financial emergency and when your savings won’t cover your emergency expenses.
3. Focus on Saving Small Amounts
While you may be focused on the task of saving money, we all have the occasional slip up now and then. These slip ups may be especially easy when you’re spending money frequently in small amounts, like buying a few extra cups of coffee a week instead of making it at home, or going out for lunch when you’d normally prepare it in advance. But these small amounts can start to add up.
So, every time you think about making one of these types of small purchases, think about where that money could be going instead. Maybe you spend $25 a week on eating out for lunch. Well, if you put that money towards your savings instead, that would be $100 a month. That amount can make a huge difference to your savings in the short and long run. Try to keep these small and unnecessary purchases to a minimum and put this money towards better use.
4. Make the Process of Saving Money Easier
While finding ways to save money may not be easy, there are tools and things you can do that could make this process a little easier for you. Start off by setting up automatic transfers to your savings account or see if you can have a portion of your paycheck directly deposited into your savings. You can also look into financial apps that can help to automate the savings process. When you start to automate this process and become used to of working within the confines of your income minus your savings, it may make things a little easier and help to make the process a little more passive.
On this note, maybe you’re looking for passive streams of income to help increase the amount you save each month. If so, take a look at this article to learn about passive income ideas.
Educate Yourself on Different Ways to Save Money
No one is saying that saving money is easy, but it may not be as out of your reach as you initially thought. The most important place to start is education. Learn as much as you can about the process of saving money and over time, you can start to incorporate positive saving habits into your everyday life.
It takes time and patience, but with the right knowledge and a good effort, you may be able to save money and have a positive impact on your financial future. We hope this article helps you in your journey!
Disclaimer: This article provides general information
only and does not constitute financial, legal or other professional advice. For
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[1] https://www.daveramsey.com/blog/quick-guide-to-your-emergency-fund
Posted in: Lifestyle
