Creating a Habit of Savings | Start Saving
Saving is important so start saving as early as possible. You probably know that since you’re here but you’re finding it hard to actual put money away. The reason we don’t save is due to the need for instant gratification. We work hard for our money so why not spend the paycheck to show us the purpose for all that hard work.
There are many ways to save money but the biggest challenge in actually saving money is our mindset around saving. We don’t fully understand the importance of saving money. This mindset supports a habit that prioritizes spending that may lead to debt living.
Don’t wait till you have “more” money to start saving.
Reasons to Prioritize Saving
Our paycheck is usually our single source of income. When an emergency happens that doesn’t align with our pay schedule we begin to rely on credit. With too much credit, we may end up in the shackles of debt. The more debt the less freedom to do or pursue the things we want.
1. Income comes and goes. With money saved up, you’ll have funds to buffer unexpected periods of unemployment or medical emergencies.
2. Savings is necessary to get the capital needed to make wealth.
3. The ability to purchase things you want becomes guilt free.
Have a Purposeful Savings Strategy
We often don’t save because we actually don’t know the reasons for saving our money. The Purposeful Savings Strategy focuses on saving for things that are truly important to you.
Set up an emergency fund. Have 6 months of expenses in a liquid account for use in event of loss of employment, underemployment or medical leave. If you happen to use funds in the emergency fund to replace a flat tire, make sure you deposit the used funds back into the emergency fund account.
Identify your short term goals such as saving for a vacation, holiday spending, expected taxes for the year.
These savings goals are usually tied to bigger purchases such as home and auto purchase, college expenses and the big dream vacation.
Long Term and Retirement
Retirement is often associated with the time in our late 60s or 70s when we can’t physically work the hours needed to pay for our living expenses. It’s also used to describe the ideal living situation or lifestyle. Retirement isn’t an age but a stage in life. However, for now focus on maximizing your 401(k) contributions, Roth IRA and investment options.
How to Save Money
If you haven’t saved money in the past, use these tips to help you prioritize and build a habit of savings.
To figure out how much money you can put into savings is by first analyzing your current financial situation and using budgeting process to help. Use the budgeting process to understand your true income and actual expenses.
Pay Yourself First
The simple rule is to pay yourself first each pay period. Start with an amount you can actually save each paycheck.
Automate Your Savings
Choose to direct deposit your paycheck into a checking account and set up automatic transfers each pay period into savings accounts.
Find Money to Save
When you feel there may not be enough money to put into a savings account, start by reducing expenses and cutting monthly bills. For instance, reducing your cell phone bill by $10 means you now have $10 to put into a savings account. Additionally, you can do side hustles with income earned strictly for savings.
Budget to Save Money
The budgeting process is the best tool to help you identify what’s important in your life and create the financial goals in order to achieve them. Budgets are often associated with limiting one’s ability to do things however budgets are essential in prioritizing saving, paying off debt and spending on wants that support living a comfortable lifestyle.
Budgeting process can be tedious but extremely helpful in managing money and reaching financial freedom.
1. Calculate your income and expenses.
2. Make a list of all income sources and calculate total monthly income.
3. Keep a record of one month’s fixed expenses and discretionary spending.
4. Organize based on categories and total expenses such as housing, transportation, food, utilities, credit card payments, etc.
5. Using paper or a spreadsheet, calculate your income compared to your expenses.
6. Analyze the results and calculate how much you can save and how much more you can pay towards debt.
7. Determine where you can decrease fixed expenses and cut spending to free up money to prioritize debt repayment and grow savings.
8. Adjust your budget accordingly as financial goals are met.
Download the Phroogal Budgeting Worksheet.
Beat the Spending Habit
Our spending habits and lifestyle choices are the biggest barriers to saving money.
A few years ago, I attended a seminar where the speaker asked, “Do you want to be the Starbucks loving apartment renter or the Folgers’ Crystal homeowner?” I sunk lower into my seat as I grasp my Starbucks’ caramel frappuccino tighter.
Was I an apartment renter because of my love for a daily caramel coffee smoothie? The answer was no. If I stopped buying a $3.95 tall frap 5 times a week, it wasn’t going to be a massive windfall that I’d be able to afford the expense of homeownership.
But, I quickly understood what the speaker was conveying – an awareness of my spending habits.
+ 3 Things You Need To Achieve Financial Freedom This Year
+ Manage Money: Should you pay yourself first?
+ How dividing your savings can help you save.
+ Have you heard of the Purposeful Savings Strategy?