The truth is, there are many “money saving guides” online, but most don’t cover the root issue for not saving.
Once I’d discovered a few key factors that allowed me to save 10k in one year, I realized why most articles couldn’t help me. The problem is that even with the right strategies you can still fail to save money. You need to have the right systems in place and the right mindset.
In this guide, I’ll cover the best ways to save money — practical yet powerful steps you can take to start saving more. It won’t be easy but with hard work, I’m confident you’ll be able to save more money–even if you’re an impulsive spender.
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Why Your Past Prevents You from Saving Money
Are you constantly thinking about your financial mistakes?
If so, these thoughts are holding you back from saving.
I get it, you wish you could go back in time to avoid your financial downfalls. But dwelling over your past will only rob you from your future. Instead, reflect on your mistakes and ask yourself what lessons you can learn from them.
It wasn’t easy for me to accept that I had accumulated thousands of dollars in credit card debt. Once I did, I started heading in the right direction. Embrace your past failures and use them as an opportunity to set new financial goals.
For example, after accepting that you’re thousands of dollars in debt create a plan to be debt free in a year or two. This way when you’ll be at peace even when you get negative thoughts about your finances. Now you can focus more time on saving and less on your past financial mistakes.
How to Effortlessly Track Your Spending
Stop manually tracking your spending.
Leverage powerful analytic tools such as Personal Capital and these money management apps to do the work for you. This tool has worked for me and has kept me motivated to why I’m saving in the first place. Once you login to your Personal Capital dashboard, you’re able to view your net worth.
When I’d first signed up with Personal Capital, I had a negative net worth, but this motivated me to save more. With this tool, you can also view your spending patterns, expenses, and how much money you’re saving.
Use your net worth as your north star to saving more. Whenever you experience financial setbacks, view how far you’ve come along. Saving money is only half the battle, being consistent is the other half.
The Truth on Why You Keep Failing
Saving money isn’t sexy. If it was, wouldn’t everyone be doing it?
Some people are natural savers, but most are impulsive spenders. Instead of denying that you’re an impulsive spender, embrace it.
Don’t try to save 60 to 70% of your income if this means you’ll live a miserable life. Saving money isn’t a race but a marathon. You’re saving for retirement and for large purchases.
If you’re currently having a hard time saving, start spending more money on nice things. This may sound counterintuitive but hear me out. Wouldn’t it be better to save $200 each month for 12 months instead of $500 for 3 months?
Most people run into trouble because they create budgets that set them up for failure. This system won’t work for those who are frugal, but chances are they don’t need help saving. This system is for those who can’t save money and need to be rewarded for their hard work.
Only because you’re buying nice things doesn’t mean that you’ll save less. Here are some rules you should have in place:
- Save more than 50% of your available money (after expenses)
- Only buy nice things after saving
- Automate your savings with automatic bank transfers
These are the same rules that helped me save thousands each year while buying the latest iPhone. Focus only on items that are important to you. Remember, you can afford anything but not everything.
How to Foolproof Yourself out of Debt
Personal finance is a game. On one end, you’re earning money; and on the to other, you’re saving. But what ends up counting in the end isn’t how much you earn but how much you save. Research shows that about 60% of Americans spend more than they save.
So how can you separate yourself from the 60%?
By not accumulating more debt. This way you’ll have more money to save and avoid having more financial obligations. A great way to stop accumulating debt is using cash to pay for all your transactions.
This will be challenging, depending on how reliant you are with your credit card, but it’s worth the effort. Not only will you stop accruing debt, but you’ll also be more conscious with what you buy.
For example, you’ll think twice about purchasing a new $200 headphone despite having the cash to buy them. According to a poll conducted by The CreditCards.com, 5 out of 6 Americans are impulsive spenders.
Telling yourself that you’ll have the discipline to not buy things won’t cut it. This is equal to having junk food in your fridge while trying to eat healthy–it’s only a matter of time before you slip. By using cash to make your purchases, you’ll spend less and save more.
A Proven Formula to Skyrocket Your Savings
Having proven systems in place to help you save more is important, but they’re not the best way to save money.
You can search for dozens of ways to save money, but there’ll always be a limit. Instead of spending the majority of your effort saving, look for ways to increase your income. The truth is that once you have the right systems in place, saving is easy.
What’s challenging is earning more money. There are many routes you can take to achieve this. For example, you can work long and hard at your current job to earn a raise. But there’s one problem–you’re depending on someone else to give you a raise.
Your company will have to have the budget, and you’ll have to know how to toot your own horn to get this raise. This isn’t to say that earning a raise is impossible, but things are better when you’re in control right? That’s why building a side-hustle is the best way to increase your income.
Think of your side-hustle as a part-time job doing something you enjoy. You can sell items on eBay for a profit, or design websites for small businesses. Building a side-hustle will be on the hardest things you’ll do, be too stubborn to quit.
During the early stages, you won’t be making money and that’s okay. Since you already have a source of income, you won’t be dependent on your side-hustle to pay for your expenses. Depending on how much time you invest in your side-hustle, it can one day replace your current income.
Whatever route you take, focus more on earning and save as much as possible. You have more control than you give yourself credit for.
Transform Yourself into a Saving Money Machine
Saving money isn’t complicated but it’s one of the hardest things you’ll do.
By learning from your mistakes and rewarding yourself after saving you’ll save more. What would you do with an extra $200 or $500 each month? To some, this is life-changing money that can improve the quality of their lives.
The truth is saving money is an art. Save too much and you’ll quit, but save too little and you’ll pay for the consequences in the future. Saving money takes effort and having the right systems in place.
Imagine if you’d started saving an extra $100 this next month? Or, saved $20K in one year? Although it’s hard to imagine, this can be your reality if you follow the principles covered in this guide.
Take a moment to brainstorm which goals you’d be able to reach if you had extra money each month. Use these goals as motivation to help you stay on track on your journey to saving more. If I was able to save thousands of dollars with little guidance, imagine what you’ll be able to do.
What are you waiting for? Go and start saving money, the sky is your limit.
Personal finances can push anyone to the point of extreme anxiety and worry. Easier said than done, planning finances is not an egg meant for everyone’s basket. That’s why most of us are often living pay check to pay check. But did anyone tell you that it is actually not a tough task to meet your financial goals?
In this article, we will explore ways to set financial goals and actually meet them with ease.
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4 Steps to Setting Financial Goals
Though setting financial goals might seem to be a daunting task, if one has the will and clarity of thought, it is rather easy. Try using these steps to get you started.
1. Be Clear About the Objectives
Any goal without a clear objective is nothing more than a pipe dream, and this couldn’t be more true for financial matters.
It is often said that savings is nothing but deferred consumption. Therefore, if you are saving today, then you should be crystal clear about what it’s for. It could be anything, including your child’s education, retirement, marriage, that dream vacation, fancy car, etc.
Once the objective is clear, put a monetary value to that objective and the time frame. The important point at this step of goal setting is to list all the objectives that you foresee in the future and put a value to each.
2. Keep Goals Realistic
It’s good to be an optimistic person but being a Pollyanna is not desirable. Similarly, while it might be a good thing to keep your financial goals a bit aggressive, going beyond what you can realistically achieve will definitely hurt your chances of making meaningful progress.
It’s important that you keep your goals realistic, as it will help you stay the course and keep you motivated throughout the journey.
3. Account for Inflation
Ronald Reagan once said: “Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hitman.” This quote sums up what inflation could do your financial goals.
Therefore, account for inflation whenever you are putting a monetary value to a financial objective that is far into the future.
For example, if one of your financial goal is your son’s college education, which is 15 years from now, then inflation would increase the monetary burden by more than 50% if inflation is a mere 3%. Always account for this to avoid falling short of your goals.
4. Short Term Vs Long Term
As a rule of thumb, any financial goal that is due in next 3 years should be termed as a short-term goal. Any longer duration goals are to be classified as long-term goals. This bifurcation of goals into short-term vs long-term will help in choosing the right investment instrument to achieve them.
By now, you should be ready with your list of financial goals. Now, it’s time to go all out and achieve them.
How to Achieve Your Financial Goals
Whenever we talk about chasing any financial goal, it is usually a two-step process:
- Ensuring healthy savings
- Making smart investments
You will need to save enough and invest those savings wisely so that they grow over a period of time to help you achieve goals.
Ensuring Healthy Savings
Self-realization is the best form of realization, and unless you decide what your current financial position is, you aren’t heading anywhere.
This is the focal point from where you start your journey of achieving financial goals.
1. Track Expenses
The first and the foremost thing to be done is to track your spending. Use any of the expense tracking mobile apps to record your expenses. Once you start doing it diligently, you will be surprised by how small expenses add up to a sizable amount.
Also categorize those expenses into different buckets so that you know which bucket is eating most of your pay check. This record keeping will pave the way for cutting down on un-wanted expenses and pumping up your savings rate.
If you’re not sure where to start when tracking expenses, this article may be able to help.
2. Pay Yourself First
Generally, savings come after all the expenses have been taken care of. This is a classic mistake when setting financial goals. We pay ourselves last!
Ideally, this should be planned upside down. We should be paying ourselves first and then to the world, i.e. we should be taking out the planned saving amount first and manage all the expenses from the rest.
The best way to actually implement this is to put the savings on automatic mode, i.e. money flowing automatically into different financial instruments (mutual funds, retirement accounts, etc) every month.
Taking the automatic route will help release some control and compel us to manage what’s left, increasing the savings rate.
3. Make a Plan and Vow to Stick With It
Learning to create a budget is the best way to get around the uncertainty that financial plans always pose. Decide in advance how spending has to be organized
Nowadays, several money management apps can help you do this automatically.
At first, you may not be able to stick to your plans completely, but don’t let that become a reason why you stop budgeting entirely.
Make use of technology solutions you like. Explore options and alternatives that let you make use of the available wallet options, and choose the one that suits you the most. In time, you will get accustomed to making use of these solutions.
You will find that they make it simpler for you to follow your plan, which would have been difficult otherwise.
4. Make Savings a Habit and Not a Goal
In the book Nudge, authors Richard Thaler and Cass Sunstein advocate that, in order to achieve any goal, it should be broken down into habits since habits are more intuitive for people to adapt to.
Make savings a habit rather than a goal. While it might seem to be counterintuitive to many, there are some deft ways of doing it. For example:
- Always eat out (if at all) during weekdays rather than weekends. Weekends are more expensive.
- If you are a travel buff, try to travel during off-season. You’ll spend significantly less.
- If you go shopping, always look out for coupons and see where can you get the best deal.
The key point is to imbibe the action that results in savings rather than on the savings itself, which is the outcome. Focusing on the outcome will bring out the feeling of sacrifice, which will be harder to sustain over a period of time.
5. Talk About It
Sticking to the saving schedule (to achieve financial goals) is not an easy journey. There will be many distractions from those who are not aligned with your mission.
Therefore, in order to stay the course, surround yourself with people who are also on the same bandwagon. Daily discussions with them will keep you motivated to move forward.
6. Maintain a Journal
For some people, writing helps a great deal in making sure that they achieve what they plan.
If you are one of them, maintain a proper journal, where you write down your goals and also jot down the extent to which you managed to meet them. This will help you in reviewing how far you have come and which goals you have met.
When you have a written commitment on paper, you are going to feel more energized to follow the plan and stick to it. Moreover, it is going to be a lot easier for you to track your progress.
Making Smart Investments
Savings by themselves don’t take anyone too far. However, savings, when invested wisely, can do wonders.
1. Consult a Financial Advisor
Investment doesn’t come naturally to most of us, so it’s wise to consult a financial advisor.
Talk to him/her about your financial goals and savings, and then seek advice for the best investment instruments to achieve your goals.
2. Choose Your Investment Instrument Wisely
Though your financial advisor will suggest the best investment instruments, it doesn’t hurt to know a bit about the common ones, like a savings account, Roth IRA, and others.
Just like “no one is born a criminal,” no investment instrument is bad or good. It is the application of that instrument that makes all the difference.
As a general rule, for all your short-term financial goals, choose an investment instrument that has debt nature, for example fixed deposits, debt mutual funds, etc. The reason for going for debt instruments is that chances of capital loss is less compared to equity instruments.
3. Compounding Is the Eighth Wonder
Einstein once remarked about compounding:
“Compound interest is the eighth wonder of the world. He who understands it, earns it… He who doesn’t… Pays it.”
Make friends with this wonder kid. The sooner you become friends with it, the quicker you will reach closer to your financial goals.
Start saving early so that time is on your side to help you bear the fruits of compounding.
4. Measure, Measure, Measure
All of us do good when it comes to earning more per month but fail miserably when it comes to measuring the investments and taking stock of how our investments are doing.
If we don’t measure progress at the right times, we are shooting in the dark. We won’t know if our saving rate is appropriate or not, whether the financial advisor is doing a decent job, or whether we are moving closer to our target.
Measure everything. If you can’t measure it all yourself, ask your financial advisor to do it for you. But do it!
The Bottom Line
Managing your extra money to achieve your short and long-term financial goals
and live a debt-free life is doable for anyone who is willing to put in the time and effort. Use the tips above to get you started on your path to setting financial goals.