5 Tips for Saving Money

• August 10, 2020

Saving money seems like a simple concept. However, few really understand how to be an effective saver. It’s more than just putting some money aside for a long-term goal or for a rainy day. Being an effective saver requires a strategy. If you are unsure of how effectively you’ve been saving, here are some tips to help you.

1. Pay yourself first. The mistake some savers make is saving based on what is left after they’ve paid bills and other expenses. The problem with this approach is that there will always be something you can spend your money on which can reduce what you have left to save. So, before you spend any of your income, take out the portion you’ve allocated for your savings as your first priority. Experts recommend that a minimum of 10% of your income should be allocated to savings. However, how much you save depends on your income and expenses.

2. Track your expenses then create a budget.  Most people have little difficulty creating a budget. Fewer people stick to them. The key is to set a realistic budget. But before you do, spend some time tracking your expenses. Learn exactly how much you spend and where. You need to know where your money is going so that you know where you can adjust. This way you can set realistic budgetary targets in line with your spending habits making it easier for you to stick to your budget.

3. Express your money as percentages. This is a useful way to plan out your budget. All this means is that you break down your expenses as percentages of your income. A popular tip is the 50/30/20 rule. This means that 50% of your income is allocated to your needs – your living expenses and essentials. 30% should be allocated to your wants, like dining out or vacations and 20% should go to your savings.  This is one of the rules of money. If you want to see all of the rules, click here.

4. Control lifestyle inflation. This is a step often overlooked when saving. Lifestyle inflation is simply spending more as your income increases. While it may be tempting to change your lifestyle to reflect your increased income, it is important that you keep this under control. You should be careful to continue to prioritize your savings and even increase them when start earning more. Continue to track your expenses to ensure that your extra income is also working toward your financial goals.

5. Save to enjoy life.  Savings should always be to improve your life in some way. Staying focused on this goal will help you stay on track. While you are thinking toward your end goal, however, remember that the process to get there shouldn’t be overly stressful. You should be enjoying life every step of the way and not only when you reach your end goal. If you find that your current savings plan is too burdensome, you may need to adjust it. Speak with a financial advisor to help you develop a workable plan.

NOTE: Savings is not your ultimate goal. You should be looking to maximize your savings and a key way to maximize your savings is to invest it. Traditional savings accounts like bank deposits generally pay low interest. You can earn more if you invest in vehicles like stocks, bonds, and equities. Making this part of your financial plan will help you earn more on your savings and meet your long-term financial goals.

Learning to be an effective saver is not just about putting money aside. It’s about creating and activating a sound financial plan. Following these steps will help you not only become a better saver but also help you put your money to work.

Quentin Gibson - Senior Securities Trader