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The best way to begin saving or save more is to start a savings plan. A savings plan is a self setup guide that is meant to improve your financial life. Starting a savings plan can be difficult and frustrating if you’re currently spending more than you earn. Don’t let that deter you from getting started!
We all want and need to save money but actually committing to a savings plan can be challenging. If you’re currently spending more than you earn you’ll have to understand where all your money is going. This is where a budget helps to clearly show how you’re spending money and where cuts can be made.
Setting a goal of saving $1,000 a month is a great thought but if that means making major changes in your life, you may not commit to the plan for very long.
Try saving $50 or even $25 a month. The goal is to do this for 3-6 months, stay committed and build wins. Once it becomes a habit look to your budget for more ways to reduce spending and increase the amount you save.
Save In The Right Sequence
Prioritize your savings ‘buckets’ in the following order:
- Emergency Fund – it’s vital to have funds saved for essential items such as food, water, housing and debts in the case you lose your primary source of income. The goal is to have 12 months saved but start with a target of 3 months. Once you get to 3 months, if you’re not already savings for retirement or if you have high interest debt try dividing what you’re saving between the emergency fund and retirement/debt payments.
- Retirement – these funds will get you through life from the day you retire to the day you die. It’s important save as much as possible as early as possible to enjoy the power of compounding interest.
- General savings/investments – this ‘bucket’ can be for big ticket items you want to buy, vacations, a new car or even for retirement.
Choose The Right Savings Account
Throw your money in your current banks savings account and you’ll probably earn 0.05%. Look around for the best yields when opening your savings account to get it working harder. As of writing this post the best yields are around 1.10% APY.
Separate Your Savings
If your savings account is at the same bank as your primary checking, you might be tempted to transfer funds. Open an account at another financial institution to make it a bit harder to tap into your savings.
The best way to save is to do it without even realizing it. Try setting up automatic transfers from your checking to your savings. Even better, time the transfers for when you get paid.
Have Goals In Mind
Your first goal should be to fully fund your emergency fund. Once that goal is accomplished have others ready. Retirement and/or debt reduction should be next but you have to live a little. Find ways to throw extra cash to a vacation fund or to a general savings account meant for non-essential items.
Saving money can be a struggle but keep at it. Once it’s a routine it get’s easier and more addicting, making you want to save more. Try to review your budget and savings plan every few months to make sure you’re on track and to find ways to increase monthly savings.