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Take Control of Your Finances: How to Start Saving Money

05.13.2019 by admin // 7 Comments

Saving money can seem like a daunting task, especially if you’re living paycheck to paycheck or struggling with debt. However, it’s important to remember that saving money is a habit that can be developed over time. By taking small steps and making incremental changes, you can create a savings plan that fits your lifestyle and financial goals. Below are some practical tips and strategies for starting to save money, including setting financial goals, creating a budget, cutting expenses, and finding ways to increase income. Whether you’re saving for a down payment on a house, a rainy day fund, or retirement, these tips will help you get started on the path to financial security. To start saving money, you need to believe that you can do this, commit to saving money and be willing to make some sacrifices in the short term to get started.

Know How You’re Spending Your Money Today

In order to start saving money you must know how you’re spending the money you earn today. If you don’t know how you’re spending your money today start this process by keeping track of your expenses for one month. Don’t change any behaviors, only add tracking what you spend and follow how you normally spend your money. At the end of the month look back at what you spent your money on. Are you spending more or less money than you are making? Were all those purchases necessary? Are there areas you can cut back on?

Create a Budget

A budget doesn’t have to be a bad thing. Like a diet, if you deprive yourself eventually you’ll go back to your old habits. There are plenty of apps like Mint which make this process much easier. First, input your regular bills like rent, electricity, internet, etc. These are all of the bills you must pay. There may be ways to decrease these bills later, but for now put what you pay today.

Next, set a goal for how much money you want to save every month or in a year and include that in your budget. It doesn’t have to be consistent – you can start with even $5 a paycheck and increase it. This will be the next thing you add to your budget. Use this money to start building your emergency fund, so if any emergencies arise you have cash to cover it. And, don’t forget to save enough money for retirement to get your employer match if they offer it at minimum.

Finally, set aside money for the things that bring you happiness and finally add in everything else. I once saw a budget that didn’t have any money set aside for clothes. Even if you don’t like to shop, you’ll need new clothes at some point.

Identify Where To Spend Less Money In Your Budget

Once you’ve developed the first pass of your budget look at how much money you are currently spending and currently saving. Does your budget equal how much you currently make? If not, go back into your budget and start editing how much you allocate per category. Then, check again. Keep repeating this until the amount of money you make equals the taxes you pay, all of your expenses and all of your savings including any retirement savings.

One trick to avoid cutting spending is to move more of your saving towards your 401(k) contributions. 401(k) contributions are pre-tax, so you’ll reduce the amount of taxes you owe in your budget.

There are ways to cut your expenses without feeling like you’re sacrificing something. For example, planning your meals ahead of time will save money on food but you can still eat well. There are also plenty of ways to save money on travel, you don’t have to give up travel entirely. And, especially if you’re in your 20s don’t forget to budget for attending weddings. Attending weddings gets expensive quickly but there are ways to attend weddings without going broke as well.

It’s ok if your budget is imbalanced when you first add everything together. Budgets take multiple iterations to get right. Keep shifting around numbers until you’re able to balance your budget. If you find that no matter how much shifting you can’t find ways to save money with your current income though then you need to start looking at ways to make more money.

Increase Your Savings By Making More Money

If you can’t meet your spending and savings goals on your current income you need to focus on making more money. Your lifetime earnings are decided in the first decade of your career. Make these years count. Don’t get distracted by spending too much time think about how you’ll reduce your expenses in order to start saving more money.

Create a plan to double or triple your salary. This plan may include strategic networking to get promoted with help from your career sponsor or switch companies by asking for a referral from a former coworker or friend. Dream big and create a plan to achieve that dream.

There are additional ways to increase your income in order to save more money. This can be done by generating passive income through investing or starting a side hustle.

Know Your Strengths And Weaknesses With Spending Money

Everyone has strengths and weaknesses with spending money. Similar to dieting, if there is one food you love and you deprive yourself of it for good, your diet will fail. But, if you know you don’t really like chips but will eat them if they are there then all you need to do is stop buying chips. One area this is seen frequently in money is when you can’t resist a “good deal.” We are all bombarded with sales from retailers, especially when we sign up for email notifications. If you didn’t get the email about the deal though, would you have spent the money? Little things like unsubscribing from promotion emails can help set you up for success, but you need to identify your weaknesses early on to tackle it head on.

On the flip side, don’t forget to focus on your strengths. By only focusing on your weaknesses you can become discouraged quickly. Understand your strengths and identify how you can expand those strengths further. If you are really good at getting a good deal, can you expand that skill to always get a good deal on required purchases like housing, insurance and food? Those bills you pay today – can you call your internet company to negotiate a better deal? Can you combine renter and car insurance to save additional money?

Automate Your Savings

Once you’ve identified how much money you want to save, or can save, automate it! Take these steps to automate your savings and watch your savings grow!

How did you begin your journey to start saving money?

How to Start Investing

02.21.2019 by admin // Leave a Comment

Do you want to start investing but you’re not sure how to start? Don’t worry that you don’t have enough to start investing. Remember, everyone had to start somewhere and you can still learn the same lessons whether it’s $1,000 or $100,000. Everyone is a little bit different, and it ultimately depends on how comfortable you feel taking risks and about your own personal finances. Before you do start investing though, what should you consider?

Feel Comfortable With Your Finances

First, you need to feel comfortable with your finances. What does comfortable mean? It means if an emergency comes up you have cash on hand to cover it and don’t have to go into additional debt. When you invest, money isn’t as liquid. If you invest in stocks for example and you need to sell stocks it takes a few days to get the cash from the sale. In addition, the price of the stock may not be the price you want to sell it at.

Have Manageable Debt or No Debt

You can invest if you’re in debt and you should invest even as you’re paying the debt off. How much depends on how high your interest rate is. The average return of the stock market historically is 10% before inflation, which is why 7% is a better benchmark to use. That doesn’t guarantee 7% return per year but it’s a good benchmark to use. If the interest on your debt is less than 5% it may be worth it to invest extra money instead of paying extra to pay down your debt faster. On the flip side, if the interest on your debt is 20% you will have a better return putting money towards paying down this debt faster.

Learn About Different Types of Investments

The easiest investments to start with are stocks, mutual funds and ETFs (electronically traded funds). Stocks are passive investments and they have decent liquidity. You can start very small, buying only a share or even fraction of a share. It may seem small to start, but the investment will hopefully grow over time either by appreciated or investing more money in the stock. If you’ve never invested, start your search by looking into ETFs (exchange traded fund that tracks a stock index) and companies you know well on Google and Yahoo Finance. These investments can also be bought as part of tax advantaged retirement savings accounts like 401(k) and Roth IRA.

There are also alternative investments, like investing in real estate, REITs and private companies. However, there are certain restrictions here which make them harder as a first investment. If you’re investing in real estate there is more capital required to get started. Crowdfunded REITs also have certain minimum investments and charge you a fee if you try to sell the investment within a certain time period. You’re required to be an accredited investor to invest in most private companies. There are certain exceptions to this including crowdfunded investments.

See Also: How to Generate Passive Income

Learn About Where to Purchase These Investments

Stocks, mutual funds, bonds and ETFs can all be purchased through companies like Charles Schwab, e-trade and Robinhood. Crowdfunded REIT companies include Rich Uncles, Fundrise and Realty Mogul.

Real estate can be bought with the help of a broker. However, knowing people in the industry will get you farther as often real estate investors have access to buying real estate before it’s even listed.

See Also: How To Invest Money In Your 20s

Set Financial and Timeline Goals

How much do you want to save? If you don’t have an emergency fund fully funded yet when will it be? How much money do you want to invest? When will you need this money?

Investments are less liquid than cash. If an emergency comes up, you need to be able to handle that from your emergency fund. You shouldn’t have to touch your investments. With any investment there is no guarantee it’ll keep or increase in value and you may lose money. With stocks, you can convert the current value to cash in the time it takes the transaction to settle (usually 2-3 days). Real Estate isn’t liquid until you sell it or you take a loan against the property to free up some cash. Investing in private companies is the least liquid. You are completely dependent on the agreement, and you could lose the entire investment. Understand the liquidity you need in the short and mid-term before you start investing.

By setting goals you’ll better understand what investments are best for you. If you don’t have enough money to meet those goals yet, don’t be discouraged. Continue learning more about the investments you’re interested in so when you do have enough money you can buy the right investment(s) for you quickly. Additionally, look for ways to earn more money in your career, through side hustles and spending less money in the first place.

Take Advantage of Retirement Savings Accounts

Once you determine your goals, identify how retirement savings accounts fit into that. If your company offers a 401k and you aren’t already contributing to it, set one up. Many companies offer 401k matches which is free money. Additionally, 401(k) contributions are pre-tax meaning you don’t pay tax on that money earned. Instead, you pay taxes on that money when you withdraw it during retirement. Roth IRA accounts are funded with post-tax dollars. That means you pay tax on the money you contribute now when you originally make the money but don’t pay tax when you withdraw money from your Roth IRA in retirement. There are rules to be familiar with for Roth IRA accounts before you get started.

Avoid Trying to Time The Market

Don’t wait until stocks look cheaper to buy. It’s very hard to time the market. Instead, invest small amounts of money consistently. Over time, it will average out.

Start Investing!

The next step is to actually start investing. Remember, don’t be discouraged if you lose money initially. Like anything, it takes practice and dedication to get good at something. Plenty of mistakes will be made along the way but it’s progress, not perfection.

Automate Your Savings – The Quickest Way to Saving More Money

02.02.2019 by admin // 3 Comments

Automate Your Savings, automating your savings

Think you can’t save more? Think again. When you automate your savings you’ll remove the step of manually moving money from your checking account to your savings account. The fewer steps you have to take to save money, the higher probability you’ll save more money.

I’ve talked to many friends who really want to get better at saving but just haven’t been able to. I’ve created budgets for them and it works for a few weeks but then their spending habits return back to normal. They see how much money is in their checking account and spend it. The number one thing that has helped them save more money is to automate their savings. If you see money available in your checking account and spend it, start automating your savings today.

What Does It Mean to Automate Your Savings

Automating your savings means you remove any manual steps to save money. A manual step usually includes having your paycheck deposited in your checking account and then you initiate a transfer of some of that money to your savings account. To automate your savings, set up direct deposit to your savings account when you get paid. Then, when you get paid your savings automatically is in your savings account, no manual transfer required.

There’s no more thinking about how you need to move money from one account to another and creating risk that you may spend some of that money before you remember to move it. You can set how much money you want to save in your savings account and forget it. You’re still able to spend this money in a pinch if you need, but that extra step of having to use another account and know you’re pulling it from your savings account helps scale back the spending and increases your success in growing your savings. Periodically you can check in and see how much your account has grown!

See Also: How to Generate Passive Income

How to Automate Savings By Setting Up Direct Deposit To Your Second Checking or Savings Account

Most companies offer select multiple accounts for direct deposits when you get paid. Choose which account gets a fixed amount every paycheck and which account gets the remainder of your paycheck. If you don’t have the link on setting up direct deposit your company provided you when you joined, search your internal HR Portal / intranet or ask your manager / HR.

You’ll need:

Bank Account Number
Routing Number
Type of Account
Bank Name and Address (you can use any address of the bank)
Account Holder Name

Best Time to Start Automating Your Savings

The best time to set up your savings account as a second direct deposit account is when you get a raise. Even if you only direct $25 per bi-weekly paycheck to another account, you’ll save $650 / year. You won’t miss this money if you time it with a raise because the amount you’ll see in your primary account won’t go down.

Another way to start is to look at how much you want to save for the year. If you want to start at $1,000/ year, you only have to direct $38.50 per bi-weekly paycheck to your savings account. If it’s $5,000, set aside $192.30 per bi-weekly paycheck to go to your savings account and then have the rest of your paycheck go to your checking account. And at that point, what’s another $16/ month? If you increase it to $200 / paycheck you’ll save $5,200 that year.

You also have the opportunity to set your savings account as the account that gets “everything else” and your checking account gets a set amount of your paycheck. In this scenario, if you get an unexpected bonus or raise it’ll automatically go to your savings account.

This is really what they mean when they say “pay yourself first.” And, it’s a great way to begin building your emergency fund.

The same is with your 401k. Anytime you switch jobs or get a raise you should increase your contribution to your 401k, even if it’s just 1%. Over time, it adds up.

What are ways you’ve found to automate savings and increase your savings rate?