Savings is more than just the money left over after you have paid all of your bills and other obligations. It is your future source of income so that you can retire and live comfortably in your later years. Ideally, you want to save enough money so you can live on the interest or investment dividend from your savings and thus not reduce your principal.
Increasing your savings doesn't happen overnight; there are actions you can take to help you save smarter. If you’re wondering, ‘How can I save money?’ Here are a few tips to help you start:
Set a Budget
The first step to start saving is to set a budget. Make a list of everything you spend in a month including groceries, gas, bills and everyday living expenses. Once you have an idea of exactly how much you spend on necessities, you can determine an amount to set aside each week for savings. There are many great phone apps and websites such as Mint.com, Learnvest.com, and the Personal Capital Money and Investing app that can make budgeting and financial tracking easier. By setting your budget and tracking your spending on the go, these applications will guide you through the initial stages of saving.
Separate Your Savings
Set aside your savings into a different account to keep your everyday spending money separate from your savings. By putting this money in a separate account, you will make sure you are not overspending and depleting your savings. Many savings accounts restrict the number of withdrawals one can make which should help reduce the temptation to access your savings.
Build an Emergency Fund
Having an emergency fund will not only give you peace of mind, but also save you from high interest rate charges if you can use cash instead of your credit card for emergencies. Your emergency fund should have enough money to cover six months of expenses. This money should be used only in the case of real emergencies such as losing your job, ER co-pays, or a flight for family emergencies or job interviews. Once the emergency is over, be sure to replenish your emergency fund.
Evaluate your Everyday Spending
After a month of adhering to your budget, evaluate your spending habits. Are there areas in which you can save more money? Consider looking at these particular expenditures:
- Grocery Shopping - Use coupons, buy in bulk, or select less expensive ingredients. Bring a list to the store to help prevent you from buying things you don't need.
- Phone, Internet and Cable – Research the telecommunication competitors to see if using another company will save you money. Let your cable company know you’re thinking of reducing or switching your service to see if they can offer you a special rate or package. You may also want to consider cutting out cable for a short period of time. Consider other entertainment options such as Netflix, Hulu, or Amazon Instant Video.
- Insurance - Bundling your various insurance policies, such as auto, home and life, can help you save quite a bit of money. Ask an insurance agent about the potential for saving if you bundle your insurance plans. Read J. D. Powers and Associates independent consumer surveys to find the best insurance company for your needs.
Give Yourself a Reward
By regularly evaluating your spending habits, you can adjust your budget appropriately. If you find you’re consistently overspending in one area, consider ways to hold yourself accountable. Give yourself small rewards for reaching savings goals and consider having a friend hold you accountable with expenditures. Once you and your friend reach a certain goal, enjoy a shared but inexpensive reward such as a $10 manicure. Rewarding yourself can help keep you motivated with your saving goals.
The Benefits of Saving
There are many psychological, as well as physical benefits, from saving money. MoneyMatters360 lists a few of these benefits in their post on the benefits of saving money:
- Less emotional stress and more peace of mind when you spend and save money.
- Financial security by having more money in the bank as you grow closer to retirement.
- Ability to set goals for things you want in life such as higher education, down payment on a home, or a car to take you to and from work.
While it's motivating to dream of buying a house, car, or taking a dream vacation, you are ultimately saving for retirement in order to have enough money to support you and your family in your later years. Once you have saved enough money, you can put your savings into a passive income-generating vehicle that will pay you a dividend (a form of income) during retirement. When trying to stay motivated to save money, remember - asking, “Why should I save money” is as important as asking, “how can I save money.”
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