According to research, one in ten people have no savings at all, and a third of the population have less than $600 on their savings account – needless to say, this situation isn’t ideal. However, putting money aside is no easy task, especially when there’s always a bill to pay or something to buy. But if you want to take control of your financial life and reach your goals, then you might want to consider tucking in some savings that you can use for the unexpected.
The good news is that with many things in life, practice could make perfect when it comes to turning savings into a habit that you enjoy and excel at. Here are the below tips that could help you master the art of saving.
SET Smart Goals:
Before you do anything, it might be good if you take some time to think about what you want to achieve. Or in other words, what are your financial goals? By answering this question you’ll get a bit more direction and planning which is slightly easier. But one thing you need to note is that not all goals are good goals – some are too cloudy and others are too unrealistic. If you want to succeed in life then you have to set SMART goals.
When you ask what are these? Well, they are goals that are specific, measurable, attainable, relevant and time-based and they should help you define steps that you need to take in order to get there. So instead of saying “ I need money for my financial expenses”, try something like I need $5000 for my financial expenses. So I'll save $450 at the start of every month for a year. Not only have you got a goal here but you have also got a plan, a time frame and the possibility to track your progress. However, note that figures used above are only examples.
Spend less than you earn
Many people struggle to limit their spending and could end up spending more than they earn which makes saving impossible. We live in a society where we are encouraged to consume and show off our latest purchases on instagram – which is not a bad thing to manage to live within your means, but it becomes an issue when you start overdoing it. The danger of over consumption and instant gratification is that you could lose control and find yourself in debt. So if you want to limit your expenses and deduct them from your total income. The sum you get after this is disposable income and you can choose what to do with it.
For example, you could decide to save a bit and use rest for free time – It’s completely up to you. But having a budget is that you get to plan beforehand. Budgeting could encourage you to bring some logic and thought into every purchasing decision you make, and it could help you spot any areas where you might want to cut back your spending. And if you can’t be bothered to do it on your own by using Excel spreadsheet, it could be worth looking into money management apps.
Pay yourself First
Many people save money after spending, and for some it can work but this approach can’t work for everyone. Say if you spend more than one month then you may not be able to put anything aside, and you could be missing out on a month's worth of saving. If you really want to avoid this scenario , it would be a good idea to treat your savings like any other expenses and you pay yourself soon after your salary goes in, the way you will be more likely to make a habit out of it – sometimes it takes a change of perspective.
Consider Saving Regularly
If you want to get serious about reaching saving goals, it could be helpful to make it a habit rather than something you do every once in a while. And by definition, a habit is something you do on a regular basis.
So, if you want to boost your financial future, it could pay off to put money aside everyday, every week or every month – it’s all up to you. The idea here is to shift your mindset towards forming a saving habit – the more you do it, the more likely it will stay with you.
You don’t even need to make huge contributions, in fact you might want to consider saving little and often to see what impacts this might have on your finances. For example, idf you save $70 a month in a traditional savings account, after 12 months you will have at least $800 in your account. And if you keep saving at the same pace for another 12 months, then your pot will be worth $1600 (minus interest).
Automate your savings
Saving regularly is a great thing to do, but it’s also easy to forget. Unless you’re extremely good at remembering things, it could be worth automating your savings. By this it means to set up a direct debit transfer going from your current account to your savings account, so that way you don’t need to think about it. The money goes in automatically, so you can relax and focus on other things while your savings account gets fed.
Think about saving the excess
Getting a pay rise or bonus is always good news, while it’s tempting to splash the cash, it would be wiser to try and save the excess. Ofcourse, there’s no harm in enjoying the fruits of your hard labour but having more money in a bank account means you could boost your savings if you wanted to.
Track your finances
Putting your money aside and making budgeting a habit can be a great start if you are hoping to save money, but tracking your progress could help make all the difference when it comes to growing your savings even further.
Chances are that you won’t get everything ‘right’, when you first start changing the way you spend, and it’s absolutely “okay”. However, by keeping an eye on your finances, you’re more likely to spot what might be holding you back from reaching your saving goals. Once you know where your improvements might be needed, you can adjust your strategy and find better ways to improve your financial health.
The truth is that there isn’t only one way to go about saving money and what works for others may not necessarily work for you. Tracking your finances could help you stay in control of your spending and devise a realistic strategy for you that is based on your personal circumstances and goals.
Consider the long-term
When you get to a place where your finances are in shape and you have enough saved, you may start thinking about the long-term.
What happens is that things get expensive over time - to put it very simple this is called “inflation” . This is something that reduces your purchasing power by causing prices to rise - it could also eat away savings from your bank account. This is due to the fact that if the rate of inflation is higher than the interest rate you get from your bank, the savings will decrease over time.
The thing is that interest rates have been low for years now, which limits growth of your money over the long-term. If you were to take your savings out after 10, 20 0r 30 years , you will realise that you can’t afford as much as you could before with the same amount. So, what do you do? Well, you could look for a competitive savings account with higher rates or you can consider investing your money.
Putting your money in the stock market can be risky, there’s no denying it. Since there’s no fixed interest rates, you could end up losing money, however this also means that there’s an opportunity for higher returns. In fact, over the long-term, investing could pay off. According to many studies, the longer you remain invested the more likely you are to make a gain.
Joining the investment world isn’t a small decision, and it’s important to consider your personal circumstances, financial goals and risk appetite as these will have an impact on how you approach investing. If you’re feeling a bit overwhelmed and you don’t feel confident to do it all on your own, that’s absolutely fine.