Sure, everybody's saved money at some point in their lives. A 10-year-old saves up her allowance to buy a DVD, a teenager saves up money to buy a TV, a newly married couple saves up to make the downpayment on a house. Saving for long-term goals, retirement living, and an uncertain future is a much more difficult task.
When hard times hit, everybody tries to find ways to cut back and save more money, but this is much easier said than done. The key to saving isn't how much you make or how much you owe. The key to saving more money is learning to pay yourself before anybody else.
Making Money and Eliminating Debt
For small purchases and short-term payments, this is not too difficult. Find out how much the stereo costs, and decide how much you want to save per week to buy the stereo. For long-term goals like retirement, however, planning and preparation are required.
Before you can begin saving money, you must make money. That being said, be sure to have a steady income and pay off debt as quickly as possible. It's difficult to save money each month when you are struggling to pay off something by paying double the item's original cost.
Saving for Specific Purchases and Long-Term Goals
- Decide what you want to purchase. "I want a new car."
- Set a specific, attainable timeframe to reach this goal. "I want to make a downpayment on a car in a year."
- Calculate how much you need to save per paycheck to reach this goal. Reassess if the amount seems unreasonable (half of your paycheck, for instance).
- Before paying any of your other bills, put the amount needed into a savings account (or make the payment you decided on).
- Repeat the above steps for each goal, including determining the amount of money needed for retirement, vacations, and emergencies.
Cutting Overall Spending
- For one to two weeks record every purchase you make, especially the smaller ones, labeling each into a category: separate bills, food, gas, entertainment, etc.
- Calculate the amount of money spent on each, especially if it seems excessive. If you spent $30 on movie rentals last month, consider a subscription to Netflix costing between $4.99 to $17.99 per month, saving almost half or more if you regularly rent movies. If you can lower your rent by finding a less expensive apartment or lower your phone bill by purchasing a cheaper plan, do so. The goal is to skimp a little now to reap the benefits in the long haul.
- Recalculate the amount of money you'll spend each month after cutting a few unneccessary purchases. Subtract this from your monthly income (after taxes). If your monthly income is $2,000 and your recalculated spending comes to $1,400, you can set aside $600 a month to savings.
- Distribute the $600 a month to your different savings goals made earlier. You will probably have to compromise on certain goals, extending the time it will take to purchase the car, instead of skimping on retirement savings. Remember to take out the $600 and devote it to savings before making any payments.
- Make a budget and stick to it. Now that you've created specific earning and saving goals, you need to follow through with them. Give yourself a limit on purchases, especially ones that differ significantly from month to month (clothing, house purchases) and smaller purchases that can easily get out of control (coffee, going out). And don't touch those savings unless it's a true emergency!
Remember that saving more money is a long-term goal, not something that can be manufactured quickly. At first, cutting minor expenses might seem difficult, but soon, saving will become second nature. As income increases or decreases and purchases are made or paid off, reassess your situation, and adjust your budget every few months to determine if changes should be made.
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