Knowing these can motivate you to save more effectively, and focusing on your personal savings goals keeps you on track. Here’s why you should save and how to start saving right away, no matter how much you make.
The critical importance of saving money
Saving is important because you can’t predict what will happen in the future. In an emergency, a rainy-day fund (ideally enough to cover three to six months of expenses) could cover your costs and help you avoid falling into debt.
Also, saving lets you build financial security, whether it’s for retirement or for milestones like having kids and paying for their expenses and education. With retirement, the earlier you start saving more – say, by putting extra cash into your super – the harder your money will work for you thanks to the magic of compounding.
A lot of people save for specific goals like a deposit for a home, mortgage repayments, a wedding, a new car, or travel. Saving for a home and mortgage repayment enhances your financial security.
On the other hand, a new car, travel, and other lifestyle purchases can boost your quality of life and address practical needs like daily transport – and saving for these means you’re not going into debt to make the purchase.
Other things you might be saving for include your tax bill, car servicing and repairs, furniture, and home renovations or improvements.
By saving up for these, you avoid having to dip into your emergency fund or worse, going into debt.
7 tips for effective saving
Getting started is probably the hardest part when it comes to saving. A budget is essential, and automating your savings is also a good idea.
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1. Start a budget
A budget creates a solid foundation for saving. You can use it to track your after-tax pay, fixed expenses, and variable expenses.
It helps you understand where you’re spending too much on discretionary items, giving you a chance to identify areas where you can cut back and save.
Set a savings goal, say 10% to 15% of your income, and record this in your budget. Specify which savings goal you’re working towards so you can stay motivated.
A budget supports you in finding the right balance between spending and saving, so make sure you update it regularly and review what’s coming in and going out. Use an app, a spreadsheet, or a paper notebook – whatever works for you.
As David Alexander, Director of Student Services at The International Career Institute suggests, “Track your spending. We can lose track of day to day spending. View your bank statements on a weekly basis, create budgets and use spreadsheets to monitor areas that are essentials vs on essentials.”
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2. Use separate bank accounts
Have your pay deposited into your daily transaction account, and set up automatic transfers of your pay into your savings accounts. You could use a third, separate account for ongoing expenses like rent, mortgage repayments, utilities, and insurance.
Using separate accounts reduces the temptation to spend beyond your budgeted allocations, and it automates your monthly or fortnightly savings.
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3. Save windfalls
Windfalls – whether it’s a work bonus, inheritance, or lottery win – are great opportunities to save a lot of money in a short period of time. Though it’s tempting to spend it, resist the urge to splurge and redirect the funds into a high-interest savings account instead.
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4. Shop smart
Always shop with a shopping list when doing the grocery run to avoid impulse buys. Buy long-shelf-life items in bulk, compare prices, and shop around for any major purchase to get the best deal. Use coupons and subscribe to special emails.
Plan your meals each week and use ingredients that are on special. This could see you saving hundreds if not thousands over the course of a year. Always haggle for a better deal when buying big items, such as furniture, electronics, and cars.
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5. Find little ways to save
Little savings can add up to big savings over time. For example, you could make a habit of collecting your spare change several times a week and putting it in a piggy bank. When it’s full, deposit the money into your savings account.
Cut back on little items like coffee, alcohol, chocolate bars, and snacks, and buy home-brand items to save a little with every supermarket run.
Pack your own lunch for work to save hundreds of dollars a year. Go green at home with things like cold-wash cycles for laundry and using a water-saving showerhead to start saving on your water, electricity, and gas bill.
You could even try making your own pet food or switching to a cheaper brand. Try adopting at least one of these new money-saving habits a week.
other valuable tips:
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6. Set limits
Start setting limits on discretionary expenditures like birthday presents, Christmas gifts, eating out, and entertainment. At the same time, take a good look at your expenses and cut out what you’re not using.
For example, you could save hundreds on a gym membership by jogging around the block or using a free workout app. A great way to stick to your spending limit is to withdraw a cash amount each week and use only cash to pay for everything.
Also, if you’re a renter, set limits on rent price that you’re willing to pay in your city. For example, if you’re renting in a city like Denver, Colorado, then make sure you read local rent reports to understand your current market and pricing.
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7. Shop around
Shop around for budget deals on utilities, insurance, travel, and low-fee bank accounts. Try finding online calculators to help you budget for big life expenses too, whether it’s a renovation calculator or a mortgage calculator.
You’d be surprised to find how much prices vary. If you shop around enough, you could lock in great deals for expenses like internet, mobile, and electricity.
Saving money can feel like a challenge or even impossible at times, but anyone can save more with the right approach. Clarify why you’re saving, set up a budget, and apply effective strategies, and you’ll find yourself on the path to saving more money for your life goals.
Image Credit: by Pixabay
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