Almost every one of us has saved money for a particular purpose. It can be for a brand-new car or just to pay some personal loans and debts that have incurred through time.
But while many try to save money, not all accomplish their money goals. Some may lose their dedication along the way while others find themselves running out of cash and thus tempting to withdraw what they already saved in the bank. This is because only a few know the secrets to save money effectively. But by secrets, it does not have to mean unique strategies on money management a few only share.
These are the best practices some adapts to achieve their savings goal swiftly.
The first step to saving money is to know how much money you have and the expenses you incur in a period, say monthly. List down your monthly income as well as your expenses—from your electricity and water bills and to credit card payments and many others.
Every expense should be written down. Remember, before you even aspire to save money for a goal, you should have a clear knowledge of your money. This gives you the bird’s eye view of how much money you spend versus the money that comes to you every month. Categorize these into three—living expenses, social expenses, and entertainment.
This is where you can see the areas you can improve on. Let us say you tracked how you dine out from an expensive restaurant almost every week or how you shell out money for a monthly magazine subscription you barely read—you get to have an idea on the areas you can save money from. With this, you start creating a budget that is doable and is flexible too.
Save first before you spend
Start with how much money you want to save for a certain goal and divide it into the number of months you will need to achieve it. For example, your goal is to have a budget for your home security system in the next six months. Usually, this can cost up to a thousand dollars for the whole package. This leaves you with over $80 per month to save for the next 12 months.
Determining your goal gives you an idea of how much you should save in a period.
Next, start the practice of paying yourself first every month before you spend money on your bills. Some people tend to buy their groceries and pay their credit card debts before saving the money left from their paycheck. To effectively save money, try doing otherwise. You can automatically debit your monthly savings from your paycheck and transfer it to your savings accounts before you can even withdraw and spend it. Whatever is left from your balance is what you should budget for your monthly expenses.
In a nutshell, consider your savings as a monthly bill that needs to be paid just like your regular financial duties.
Live below your means
As you learn how much money you earn monthly, you have to learn how to live below it and not go beyond. That is why listing down all your expenses and your income helps determine if you are spending more of what you earn.
Keep in mind that you should not spend anything that is beyond your earning. If you do, you will have deficits, and a shortage of money may result in decisions such as applying for a new credit card with interest rates or applying for personal loans with interest rates. You may end up paying more of what you loaned, which is an additional financial burden.
Allow yourself to be debt-free too. Paying all your credit card balances will do good on your credit score if you decide to have loans in the future.
If you know that you are always short in cash, you can think of how you can add money to your earnings. Think of ways to earn more like conducting online classes, making snacks to sell to your neighborhood, or offer services you excel as such as photography, writing, or painting. Make use of your talents to earn more and save more.
These best practices are a no-brainer. They are simple and proven effective. Live by these principles in saving money, and you will not only reach your goals but also be on your way to financial stability.
Based on Materials from The Balance