We are currently amidst some seriously chaotic times and many of us have lost our jobs (including myself!). This loss of primary income means that saving should be prioritised rather than investing. Saving money can be hard, however with these 5 steps you will be hitting your savings goals in no time!
1. Establish a budget (of some kind)
What cannot be measured, cannot be managed.
Those with a savings plan are twice as likely to be successful. I believe that it is extremely difficult to save money without a budget and all diligent savers should have one of some kind. Keep in mind, this doesn’t have to be a detailed excel spreadsheet, but just knowing how much money is coming in and out is enough.
To get started, simply write down:
- How much you are trying to save and by when: $5,000 by December 2020
- What is your total income?: $2,500/month
- What are your total expenses? $2,100/month
- How much do you need to save to reach your goal? $555/month
- How much should your expenses be? $1,945/month
- I need to cut down my expenses by – $155/month
Once you have all of these figures, you know exactly how you should be spending and saving to meet your goal. The next step would be figuring out how to cut down your expenses.
2. Prioritise and figure out what expenses are important
Sit down, go through your expenses and see what is really important. This will help you assess what isn’t required – this is what we will focus on cutting out. Bills such as rent, electricity, phone and high-interest debt will be your highest priority. Next, will be non-fixed expenses such as food, petrol, medical/dental expenses. After these expenses, we head into discretionary purchase territory. This is where you will have to carefully assess on what can be cut down.
If you haven’t done this kind of thing before, you’ll notice you are spending your money in a lot of ways that you don’t really care for. It could be anything from mindless online shopping, ordering delivery food or an unused gym membership. Make a list of all of these purchases and cut those down first.
If you find yourself disappointed about cutting out something you enjoy, remind yourself that this is not forever and you will be able to make that purchase again after meeting your goal.
3. Have a separate savings account – and don’t look at it!
I highly recommend not saving in your regular, checking bank account. This will make it too tempting to spend that money if it is right in front of you! Instead, start a separate savings account for your goal, and put your money directly in there.
Tip: Start a savings account at a different bank to your regular one. This will discourage you from looking at it as much and you will be less tempted to spend it!
4. Pay yourself first
Once your pay hits your bank account, transfer some of the money to your savings account immediately.
Do not do this after you have paid for all your expenses. Doing this first, ensures that you actually lock that money away and it will not be spent. Remember, in an emergency, you can always take money out of your savings account so don’t be scared to have less money each month.
5. Delay your “fun” purchases by at least 24 hours
You’ve seen a cute shirt online. You want to buy it. Don’t!
When you are about to buy something non-essential or “fun”, wait at least one day before you buy it. If you still want it, then get it. This sounds like a silly tip, but is actually incredibly powerful because we love instant gratification. If you delay that by even one day, you’ll find that you don’t want that item and would rather put it towards your savings goals.
I hope that these 5 steps will help you reach your money goals!