Despite how important maintaining savings is for financial stability, fewer people than you may expect successfully save a portion of their monthly income. According to Bankrate.com, 21% do not save money at all, and 20% of those who do save only save 5% or less of their income. Thanks to this, a large portion of the U.S. population is not prepared to face unforeseen financial expenses or, much less, to ensure their retirement.
Where do you see yourself? Would you like to start saving money consistently? In this article we break down some simple tips that will help you save more.
1. Set a goal
The first step to saving money is knowing what you’re saving for. Once your goal is clear, you can define the amount and timeline. The time that it will take you to save up for something will depend on your objective, therefore it’s advisable to set short, medium, and long-term milestones. You can start with simple goals of a couple of weeks and gradually work your way up to monthly or yearly goals.
2. Make a budget
To begin saving money you have to know exactly how much you earn and, of course, how much you spend every month. If you don't have a clear idea of how you’re using your money, start by listing all your expenses (regardless of how small they might be), as well as all your sources of income. Then classify expenses into essential and discretionary expenses. It’s very important that you be as accurate as possible when listing your expenses, as that is the only way you will truly know how much money you can save.
3. Diversify your savings
This is closely linked to setting objectives. While it’s important to be careful with your money, it's not just about saving for the sake of saving. In addition to saving money to buy a flight or get a new smartphone, you should consider an emergency fund and a retirement fund, among others. Don't make the mistake of saving money without taking into account future needs.
4. Choose the savings instrument that’s right for you
Although keeping cash in a box or under the mattress is a very practical way to save money, it’s not the safest option or the most profitable in the long term. To keep your money safe and earning interest, you can opt for a savings account or certificate of deposit. The latter option gives you a higher return, but it requires that you keep your money in the bank for a set period. We suggest that you do some research on different financial institutions to find what best suits you.
5. Activate the smart buyer in you
Another essential step to saving money is knowing how and where to buy.
What does this mean? It’s about being informed and learning to research the price, compare available offers, and make use of purchase conditions offered by different stores. Although it might seem like a small difference, pennies add up, and this will help you save more in the long run.
6. Read contracts carefully
This is especially important for people who have some kind of loan or credit. If you use a store credit card or are paying for something in installments, read the contract terms carefully (preferably before signing). This way, you'll know how much and when you have to pay in order to avoid paying surcharges or high interest.
7. Check your progress frequently
The most obvious benefit of budgeting is keeping your finances organized and knowing how much you can spend, but it can also help you to track your savings progress. We encourage you to review your budget frequently, both to feel the accomplishment for what you’ve achieved so far, and to remind you not to break with your plan as you get closer to your goal.
8. Be cautious
Spending in an orderly and responsible manner is great, but that doesn’t exempt anyone from going through an unforeseen event. To prevent emergencies or any kind of accident from affecting your goals, leave a margin in your savings plan. For example, in an annual savings scheme, consider only 10 deposits (instead of 12 for the 12 months). That way, if you do have an unforeseen event, you have two months to recover and move on with your savings plan.
9. Don’t lose hope
If, despite following these tips, you don't manage to save money as planned or feel as if there’s always something that comes up and impacts your savings plan, give yourself a break. Don't get discouraged. It’s normal for situations that affect your personal finances to come up from time to time, but that isn’t a reason not to persevere.
If you have repeatedly broken your savings plan, we suggest that you review your budget. Perhaps at the time of drafting your plan you did not consider all of the circumstances or maybe you simply were too optimistic. If this is the case, adjust your budget and move forward.
10. Promote a savings culture among your loved ones
Finally, we suggest inviting your family and friends to save. By sharing this goal with your loved ones, you will be instilling a sense of communal goals that will help you support each other.
The sooner you start, the greater the benefits. It doesn't matter if you have $10 or $100; remember that to start saving you don’t need a lot of money, but you do need perseverance and a plan.