How to start saving money starts with your mindset. It’s easy to think with your rent, student loan payments and bills that you can’t save money. While it can be daunting to start, anyone can save money. 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.
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?