“Don’t save what is left after spending; spend what is left after saving” is the advice given by the world’s most successful investor Warren Buffet. The importance of saving money cannot be overemphasised. Saving is an excellent habit that you must inculcate early on in life to ensure your financial security.
Sometimes the hardest thing about saving money is just getting started. This step-by-step guide for how to save money can help you develop a simple and realistic strategy, so you can save for all your short- and long-term savings goals.
Use these money-saving tips to generate ideas about the best ways to save money in your day-to-day life.
How to Save Money?
Saving is crucial. This is much easier said than done. It is not uncommon for your short term happiness to override your long term goal of saving. To be able to save, you need to be firm with yourself.
Here are some steps to start saving:
- Estimate your current sources of income and the total amount of income.
- Set aside funds required to run your household and meet other necessary expenses.
- Earmark funds for expenses to be incurred on shopping, outings, and other activities.
- Mark the rest of your earnings as your monthly savings.
- Set a tight budget for yourself and operate within the budget at all times, barring a few unavoidable exceptions such as a medical emergency.
Once you have an exhaustive plan of your expenditure, you would be able to find out the amount of money left over for savings. This will give you an estimate on how much you can save every month. Then plan on deploying these savings in appropriate investment avenues.
1. Track your Spending
We can fall into the trap of thinking spending on big things is what gets us into trouble, when often it’s the little things that end up costing us more.
That’s why it’s important to keep track of your day-to-day spending, so you don’t live beyond your means. Your bank statement will tell you how much money is going into your bank account and how much is going out. You can then compare it with your budget to see whether you’re sticking to it or not. You can then identify areas where you can save. Just the thought of having to track our spending can ward off impulse purchases.
2. Eliminate Your Debt
If you’re trying to save money through budgeting but still carrying a large debt burden, start with the debt. Not convinced? Add up how much you spend servicing your debt each month, and you’ll quickly see. Once you’re free from paying interest on your debt, that money can easily be put into savings. A personal line of credit is just one option for consolidating debt so you can better pay it off.
3. Set Savings Goals
One of the best ways to save money is by visualizing what you are saving for. If you need motivation, set saving targets along with a timeline to make it easier to save. Want to buy a house in three years with a 20 percent down payment? Now you have a target and know what you will need to save each month to achieve your goal.
4. Record your Expenses
The first step to start saving money is to figure out how much you spend. Keep track of all your expenses that mean every coffee, household item and cash tip. Once you have your data, organize the numbers by categories, such as gas, groceries and mortgage, and total each amount. Use your credit card and bank statements to make sure you’re accurate and don’t forget any.
5. Find a better Bank
Ideally, your bank should have no-fee checking, a wide ATM network and good online banking services. If your bank regularly hits you with account maintenance fees or ATM fees, look for another bank. Here are some great full service banks that offer these features and some great online-only banks that excel at online banking in particular.
6. Ideal distribution of your Salary
Ask the human resources department at the organization you work at to divide each of salary amount between your checking and savings accounts. If you keep a definite percentage to routinely deposit into your savings so you are not likely to touch that while out shopping or pubs. Another perk here is that interest rates are normally more for savings accounts than they are for others.
7. Spend to Save
Let’s face it, utility costs seldom go down over time, so take charge now and weatherize your home. Call your utility company and ask for an energy audit or find a certified contractor who can give you a whole-home energy efficiency review. This will range from easy improvements like sealing windows and doors all the way to installing new insulation, siding or ENERGY STAR high-efficiency appliances and products. You could save thousands in utility costs over time.
8. Decide on your priorities
After your expenses and income, your goals are likely to have the biggest impact on how you allocate your savings. Be sure to remember long-term goals it’s important that planning for retirement doesn’t take a back seat to shorter-term needs.
9. Plan Cash Withdrawals
If you end up using ATMs more often, plan each visit sensibly to evade usage fees. The first few times, you are allowed free transactions, after which it will be charged INR 20 per transaction and INR 10 per enquiry. Stick to your own bank’s ATM as much as you can. When it is time to take out cash, see if you can swipe your card.
10. Pick the right Saving Tool
If you’re saving for short-term goals, consider using these FDIC-insured deposit accounts:
- Savings account
- Certificate of deposit (CD), which locks in your money for a fixed period of time at a rate that is typically higher than savings accounts
For long-term goals consider:
- FDIC-insured individual retirement accounts (IRAs), which are tax-efficient savings accounts
- Securities, such as stocks or mutual funds. These investment products are available through investment accounts with a broker-dealer. Remember that securities are not insured by the FDIC, are not deposits or other obligations of a bank and are not guaranteed by a bank. They are subject to investment risks, including the possible loss of your principal.