Saving money is essential when planning for your future. Having a financially comfortable life should be enough to convince you to turn saving into a habit. But there is even more to it.
Living paycheck to paycheck is stressful and leaves us feeling we are getting nowhere. There are months in which you will spend too much on frivolous things and then there are months when you will not have enough, like when kids go back to school or there is an expensive holiday. This type of behaviour not only stops us from saving for our lifetime but also from making bigger purchases that truly improve our life, like a car or a home.
To save you need to earn more than you spend. That is difficult to do when there is a sudden cut in your income like many of us are experiencing during this pandemic. If you find yourself in a position in which you have pushed your budget to the limit and it is taking you nowhere, it may be time to consider taking steps towards increasing your income. You may ask for a well-deserved raise, find a better job in your industry, or get a side gig. If you are unable to raise your income, give yourself grace but keep trying. Things will align for you!
Without further ado, for those who can afford to save regularly, here are five tips to help you save consistently and efficiently.
1. Create a savings goal
It is easier to carry on with something unpleasant or unusual when it is a step towards a valuable goal. So, before you even start saving, decide what you are saving for. It will help you stay on track down the line when the initial excitement wears off and tough decisions need to be made.
You can go for a short-term goal, like purchasing something you need for work or simply paying your bills, for a medium-term goal, like being able to afford a down payment for a home, or a long-term goal, like being financially independent in your retirement.
Once you choose your goal, create a step-by-step plan to reach it. Start by answering these questions:
- How much do you need to save in total to reach your goal? By when?
- How much do you need to save each month?
- Is what you are saving each month currently enough? If not, how much more do you need?
- How are you going to afford any additional monthly savings needed? Is it by earning more or by spending less?
Once you have your goal and your plan, share them with someone that you know will hold you accountable and help you reach it!
2. Budget with your family
If you need to save more than you are used to for one of your goals or if your family suddenly faces an income reduction, it is time to cut down on your expenses. A good budget will help you do just that.
You can budget in many different ways. Some people do it weekly on envelopes, some do it monthly on fancy mobile apps, others do it yearly on spreadsheets. Each of those options works for some people. Try them out and find the flavour that suits you best.
Regardless of the technique you choose, always involve your family in the budgeting process. Even if you are in charge of your family’s finances. When you need to cut down on eating out or shopping for clothes, make sure everyone agrees that the financial goal is more important than what you are temporarily or permanently removing from your lives. Everyone will be more willing to collaborate this way.
Unless absolutely necessary, only cut down on what does not add value or happiness to your family’s life. Go through your expenses and find recurring or expensive costs that are there solely out of convenience or habit. You will be surprised by how many of those you will find!
3. Set up a savings account
Money in a savings account remains accessible to you but you need to transfer it to a debit account before using it. That additional step between you and your savings might just be enough to stop you from spending them.
Many banks allow you to create savings accounts for free and the money put there may earn you some interest.
Savings accounts are the safest option when saving for short- and medium-term goals but obviously do not earn you as much over long periods of time as investing in a diversified portfolio. So, they are not ideal when it comes to retirement savings.
4. Invest your Retirement savings
When saving for retirement, you are racing against inflation. To come out ahead, you need your savings to earn you considerable money over time. Investing in a diversified portfolio can do that for you.
In addition to earning money on what you invested in the first place, you will also earn on the money you earn in the meantime. Put simply, the money you earn from your investments is usually invested back and keeps earning you money. This is called compound interest.
But there are two more reasons for investing your retirement savings that make them valuable even regardless of how much they earn you over time:
- Employers sometimes match your monthly investments at no cost to you.
- There are tax reliefs in place for the portion of your income that is invested for retirement.
5. Set up a recurring transfer
Whether it is to your savings account for short- and medium-term goals or to investments for long-term goals, setting up recurring transfers of part of your income as soon as it hits your account reduces your probability of touching money you want to save.
Just a word of caution: only set up recurring transfers of amounts you are comfortable with. You can always make a manual transfer if there are leftovers in your debit account by the end of the month.
If you want more tips on how to manage your wealth, feel free to contact me. As a Certified Financial Planner (CFP), I can be by your side every step of the way and help you secure a happy financial future for you and your family.