#1 – Set your priorities.
We’d all like to save money and tend to have similar reasons behind why we want to save. The primary difference often lies in where the importance of those reasons falls on our scale of priorities.
Take a look at what follows and see where these categories land on your priority list:
- Retirement. Are you hoping to be financially comfortable and secure when it comes time to retire? Time flies, and the earlier you start to contribute to these savings, the more money you’ll have down the line.
- Home Buying. You’ll need a down payment to purchase a home. This is often the number one reason why people who want to become homeowners start putting money away early.
- Emergencies. You need a new roof. The A/C needs repair. You lost your job and need money to get through the hard times. It’s important to save (and keep aside) 6-12 months of income for when emergencies arise.
- Luxuries. Would you like to have enough money in your savings account for special vacations, gifts or the latest tech gadget? Luxuries are important in order to maintain a good balance between work and fun.
- New Car. Whether your old car conks out or it’s just time for a new model, cars can be expensive. Rather than having a car payment each month, wouldn’t it be nice to have enough cash to make that purchase and have your car completely paid for up front?
- Education. You never know when you (or one of your children) are going to need money for school. You might want to further your education or your child might want to attend college. If you start saving now you can be more prepared later.
#2 – Make a plan to save money.
Okay, so you’ve set your priorities and now know what’s most (and least) important when it comes to why you want to save money. Now… how are you going to start saving? Here are a few ideas to consider:
- Track your expenses so that you know how much and where you’re spending your money. Once you’re aware of exactly how your money is being spent (everything from café lattes to haircuts to cable TV), you’ll better understand where cuts can take place.
- Build a budget so you can plan your spending, limit your overspending and cut back on things you don’t need. Doing these things will provide additional money to put away each week and/or each month.
- Budget for savings, which essentially means that, when you categorize and chart out your earnings and expenses, add a “savings” column to your chart. Think of savings as just another monthly expense to which you must allocate a portion of your income. You can use myFICO calculators to help!
- Savings methods are an important aspect of any budget. Will you open up a Certificate of Deposit to get more interest on your money than a typical interest-bearing savings account offers? Do you have enough to open an IRA or a stock portfolio for bigger gains? Determine which method of saving best suits your budget (and personality) and talk to a professional who can help you with the details.
#3 – Stick with it.
This is the most difficult part of saving money – sticking to the plan.
It happens to the best of us: we set our priorities and make a plan with all calculations figured out to the tee. We’re proud of our accomplishment and for a month or two we stay on track. But then… a new iPhone hits the market, or we go out for dinner three nights in one week. We start spending again when we shouldn’t and by the time the month is over we find there’s no remaining money to put in the “savings” column we worked so hard to start funding.
This is the time that matters most. Don’t get discouraged and don’t give up. Go back to your goals to remind yourself why you wanted to save in the first place. Then review your plan and, as the saying goes, get right back up on the horse. If you remain dedicated, saving money will likely become a habit and, perhaps before you even know it, you can reach those goals that at the start seemed almost impossible to reach.