Whether you’re saving for a new couch or a vacation, there are ways to save up without feeling like it’s going to break the bank. Setting financial goals can help, and so can figuring out how to automate your savings.
Think of your savings as a bill you need to pay; you can do it without making much of a lifestyle change.
1. Limit Your Overspending
Are you struggling to control your spending habits? Do you find that every paycheck seems to disappear, leaving you in debt or using credit cards? Regaining control of your expenses is key to meeting financial goals like building good credit, buying a home or saving for retirement.
Overspending can be caused by many factors, including societal pressure to keep up with peers and a lack of financial knowledge. One way to limit overspending is to identify unnecessary expenses like memberships, subscription boxes, unused clothing or electronics and rethinking your dining out and vacation budgets. In addition, it is a good idea to see if you are eligible for financial assistance programs such as IDAs that offer matching funds for low-income individuals.
2. Create a Budget
Creating and following a budget will help you track your spending habits. It will also help you set aside money for future expenses, such as a house, car or retirement.
It is best to divide your expenses into categories, such as fixed expenses, food and clothing, entertainment, and personal care. You can even get more detailed by adding subcategories, such as dining out and utilities.
Then, subtract your monthly after-tax income from your total expenses to determine how much of your income is left over for savings and debt repayment. If you have a surplus, consider saving it in a high-interest savings account. This can make a significant impact over time. Then, you can enjoy the things you want in the future without resorting to credit cards or payday loans.
3. Automate Your Savings
It’s a good idea to make saving a habit, and you can do this by automating your savings. Similar to how you set up automatic bill payments for rent, utility bills and subscription services, it’s a smart move to put your own savings on autopilot.
You can do this by having a fixed percentage of your paycheck automatically transferred from your checking to savings account each month. This will help you avoid present bias, and will ensure that you are always paying yourself first.
You can also use cash back credit cards to save a portion of your earnings each month. This could add up to a nice sum over time, especially when you consider compound interest. Make sure to choose a high-interest savings account so your hard-earned dollars go as far as possible.
4. Set a Goal
The best way to keep on track with your savings is to set financial goals and stick with them. You may need to reevaluate your goals from time to time, depending on life circumstances and needs.
If your goal is to build an emergency fund, for example, make sure you save three to six months worth of expenses (use your budget to determine this). You can even automate the process by having a certain percentage of each paycheck automatically sent into a separate savings account that you can’t touch.
Other longer-term goals could be purchasing a new car, saving for a wedding or paying off a student loan balance. Mid-term goals include things like a new television, computer or family vacation. Short-term financial goals can be as simple as paying off a credit card debt.
5. Frugal Living
Frugal living can help you save up for the future by allowing you to purchase better quality items and reduce waste. Choosing to buy second-hand goods like furniture or even cars can be an excellent way to save money and limit your environmental impact.
Practicing frugal lifestyles can also give you the flexibility to take calculated risks when it comes to your career or personal life. You will have the freedom to start a new business or relocate if you want to, because you won’t be saddled with debt or living paycheck to paycheck.
Financial wellness is when you have all your financial ducks in a row; that includes being debt-free, not living paycheck to paycheck and actively saving for the future. By forming the right money habits, you can achieve these goals and live your best life!