We all know the importance of saving — because we’ve heard it from nearly everyone we know! It’s the first piece of advice you get as soon as you land your first “real” job. But no one ever addresses how difficult it can be to actually save. The hardest part for most people is getting started, so we’ve put together a step-by-step guide to help you do just that.
1. Record Expenses. You’ll never be able to save money until you know how much you spend. Therefore the first thing you need to do is track and record your expenses. Organize everything into categories and then get the totals for each category. You can use a budgeting tool or app to help you do this.
2. Make a Budget. With a clear idea of how much you spend each month, you’re in a better position to create a budget that will help you manage these expenses. The budget will show you the relationship between your income and your expenses and point out problem areas that you can work on. When preparing the budget, be sure to take into account some of the costs that are regular but don’t occur every month.
3. Choose a Saving Goal. Once your budget is complete, it’s time to create a savings category within the budget. Depending on your income and monthly expenses, you should try to save at least 10% to 15% of your income every month. The one important thing that makes saving much easier is setting a goal: what are you saving for? Perhaps it’s a vacation, a down-payment for a home, or even a wedding. A goal gives you an end-point and knowing the exact amount of money you need before you begin saving can help you determine the percentage of your income to save.
4. Choose the Right Saving Tool. You have so many options to choose from! A regular savings account or a Certificate of Deposit (CD) are perfect options for short-term goals. For longer term savings goals like retirement, you should consider putting your money in FDIC insured retirement accounts that are more tax efficient than savings accounts. Mutual funds, stocks, and securities can also make great long term saving tools although they are not FDIC insured and are subject to some risks including the risk of losing the principal amount.
5. Make it Automatic. Nearly all banks offer you the option to automatically transfer funds between your checking and savings account, particularly with online banking options. You can choose to do this since a section of your paycheck will go directly into your savings. When you do it this way, you don’t have to think about it which eliminates the discipline aspect of the saving process and removes the temptation to spend the money on something else.
Don’t forget to take some time every month to review your budget and check the progress every month. This will help you identify and fix any problems with your plan and grow your savings steadily. Happy saving!
