Is saving money easy? From a distance, it certainly appears to be.
But, when it comes down to it, it’s pretty difficult – especially when you don’t have a stellar income.
You already know you need to save money for the future. You need to save money for retirement, for an emergency, for your kids’ college education. The list goes on and on.
And, in the back of your mind, you know these are real expenses that will most likely get worse over the course of your life.
If you haven’t started saving for these goals, the first question you’ll need answered is how to start. Most of the time, starting is the hardest part about saving for any goal.
This article is a great place to start if you’re having trouble taking that first step. I asked several financial advisors their best financial advice on how to save money, and received a variety of responses.
Here are their best tips. Which one is your favorite? Which one will you try?
1. Track your expenses.
Engineer-turned-advisor and founder of WealthMobius.com Bily Xiao says: “Too many adults do not have an accurate view of their income and expenses. But if you measure it, you can improve it. So start tracking, take stock of how much you’re saving, identify low-hanging fruit of expenses you can cut, and start setting some incremental goals to increase your saving. Make use of great tools like Mint.com (syncs with your financial accounts) or YouNeedABudget.com (more manual and private) for tracking.”
Let’s dive a little deeper into tracking your expenses and learn how that can help you save money.
First, recognize that there are two different types of expenses: one-time and subscription. One-time expenses are those that usually happen once. As one-time expenses, they don’t generally reoccur over time. For example, you might pick up an ice cream cone at the store versus signing up for an ice cream cone subscription. This is considered a one-time expense – even if you end up buying the same type of ice cream cone again at a later date.
One-time expenses can be a big deal when it comes to eating away at your bank account, especially if they occur frequently. However, they can be fairly easy to track since you have to make these purchases manually. Because they are on your radar, it’s easier to identify these expenses and do something about them.
Subscription expenses are those that keep popping up over time, and even monthly. Recurring expenses include bills such as your water bill, cable bill, and rent. You’re signed up, so you expect to receive these bills every so often. The cost of these subscriptions may or may not be fixed.
Now, subscription expenses are a little tricky. For some reason, you might find yourself justifying the recurring, subscription expenses more easily than the one-time expenses.
Imagine this scenario. You’re in a cell phone store shopping for a phone and service. You see a phone that costs $850 that comes with a service plan that will cost you $50 per month. You also see a phone that costs $200 with a service plan that will cost you $80 per month. Let’s say you are going to keep the phone and service for four years.
Which phone should you get if you want the better deal? While you might be tempted to get the phone with the lower price tag, the phone with a higher price tag is the better deal in the long run.
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Over the course of four years, you’ll pay a total of $3,250 for the higher-end phone and the service. Over the same four years, on the other hand, you’ll pay a total of $4,040 for the cheaper phone and service. The lesson here is to do the math and figure out which deal is truly the best in the long run.
Not only will you save money when you do the math and pay attention to subscription costs, but you’ll be able to save money to make similar, higher-priced upfront purchases like this again in the future in order to save money on subscription expenses (when applicable).
2. Automate it.
Jamie Pomeroy, Financial Advisor at MerchantsBank says:
“Once you have established a budget and have clear short- and long-term goals, one easy way to get in the habit of saving money toward those goals, is to simply automate it. Set up regular and automatic deposits into your investment and savings accounts, either directly from your paycheck or from your checking account.
This is such a simple practice that will pay tremendous dividends in the future. To help you with this, you may also want to check out technology tools that might just make your savings life a little easier. Tech tools like Digit will determine how much you can afford to save each week or month based on your personal income and spending, then it will actually send those amounts to a savings account for you!”
No matter what, automating will definitely help you stay on track with your savings goals. It truly is one of the quickest and easiest ways to save on a continual basis. However, you do need a way to keep track of what’s automated so you’re still in control.
While automating can help you save on a continual basis, you should also be aware of some of the practical limitations of automating when you’re trying to optimize your savings.
One such limitation comes when your income or expenses change but your automated financial decisions don’t. This, as you can imagine, could be problematic. If, for example, your income significantly drops and you no longer have the funds to transfer money into your savings account, you’re going to need to remember that so you can adjust the amount. Of course, this is assuming that you aren’t using software that can automatically make these adjustments for you.
Another example: If your income goes up dramatically, you’ll likely want to stash even more money away in savings. If your savings is automated, however, you’ll have to boost your savings rate manually.
In order to overcome these limitations, it may be helpful to do an annual review of your financial situation and include your savings account connections and transfers as a part of that review.
As a final reminder, just because you can automate something doesn’t mean you always should . In the real world, there are times when it doesn’t make sense. With all of that being said, it’s worthwhile to automate as much as you can as long as it helps you reach your goals. Then you can sit back, relax, and watch your savings go up and up!
3. Get out of debt.
Scott Wellens is the founder of FortressPlanningGroup and host of the “Best in Wealth” podcast. He says: “People who have a lot of consumer debt and other loans do not have the cash flow to save in the first place. Debt-ridden individuals end up paying interest to the credit companies instead of earning interest on savings. The best way to start saving money is to get out of debt as quickly as possible and have the discipline to stay out of debt. You will be surprised at how much money can be saved on a monthly basis if you kick debt out of your life.”
Debt can linger on and on for years, making it nearly impossible for people to save. Thankfully, there are some great online tools that will help you get out of debt. But remember, the software only works if you work with it, so do so!
When you’re looking to get out of debt, I recommend listing your debts one by one. You may choose to order them from the highest interest rate down to the lowest interest rate, or the lowest balance down to the highest balance. The first method may save you the most money, but the second method is nice because it helps you to feel your progress. Whatever you decide, just make sure you attack one debt at a time.
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Also, be sure to check out some ways to save money. The more money you can save, the more money you can use to pay down debt. The more money you can put toward debt, the less interest you’ll have to pay. And, the less interest you have to pay, the more money you’ll have to save! You’ll start to gain a natural momentum as you pay off your debt and will be able to save more than before.
I’m going to let you in on a little secret. In order to pay off debt, you’re going to need to get some financial grit. You’re going to have to be determined – really determined – to pay off debt faster than normal. It’s not easy, especially if you’re used to being in debt.
It’s useful to continue your debt-free ambitions long after you become free of the clutches of debt. Don’t go back into debt! Spend less than you make and you’ll avoid debt for the rest of your life.
You’ll be shocked by just how much you can save when you have no debt. I encourage you to envision that now. What will it be like to be free of any debt whatsoever? What could you save toward? How much further will each and every paycheck go? Grab onto this vision and let it be a motivation for your efforts.
Many types of debt, like credit card debt, can have absurdly high fees that make them very worthwhile to pay off before you invest money. How much will you make in the stock market? 6% per year on average? 7%? While that’s good, you can “make” a whole lot more by paying off your high-interest credit card debt.
Invest in your future by paying off your debt. It’s a guaranteed return on investment. You’ll know what to expect and, as you pay off each debt, you’ll have more money to throw towards your other financial goals.
4. Find an accountability partner.
San Diego Financial Planner Taylor R. Schulte says: “Whether it’s school, work, or your family finances, having someone to hold you accountable for the task at hand can increase effectiveness and deliver stronger results. Consider using this concept to help save more money. Set an achievable savings goal and enlist an accountability partner to monitor your progress and keep you on track.
Although it’s an option, this person doesn’t necessarily need to be a financial professional. It can be your spouse, relative, friend, mentor, or next-door neighbor. You might even make a family game out of it and work as a team to hold each other accountable.
For instance, set a savings goal for each family member and agree on a prize for the person who reaches it first. Maybe all the money saved goes into a vacation pot and the winner gets to choose the destination. Whatever you decide, just be sure to avoid setting the bar too high. Achieving the stated goal, even if it’s small, can help provide the motivation needed for future success.”
Schulte is right on this one. Having accountability can help you achieve results. Having a military background, I refer to this as having a battle buddy.
If you’ve ever worked in a fast food restaurant, you probably know about health inspection audits. These audits are designed to protect the public from the mishandling of food or equipment. The restaurant may not know when an audit is going to be conducted, and so they have not only a moral reason to keep their premises operating correctly, but a financial one as well. If they don’t live up to the standards, they may not be able to conduct business in the future.
In the same way, when you set up your accountability program with someone, ask them to provide you with occasional, unexpected audits. If you know when an audit is coming, you’ll probably be more likely to slip until you have to get your act in gear. But if you don’t know when an audit is coming, you’ll probably make sure to save regularly and not dip into your savings fund for a new, discretionary gadget or gizmo.
It’s important to note that telling someone about your savings goal may actually backfire. It can backfire if you feel the positive effects of letting someone know about your goal and let that be the substitute for actually achieving your goal. Focus on letting your actual accomplishment be the reward – not the telling of some future accomplishment you hope to achieve.
5. Start off small.
Kansas City Financial Planner Clint Haynes says: “When you begin contributing to your employer’s retirement plan, start off with an amount you are comfortable with and know you can afford. I always recommend contributing (at minimum) the least amount needed to get the company match (if you’re so lucky to have a company match).
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Then, set a reminder for the same day every year to increase your contributions by 1-2%. You’ll typically get some kind of raise every year, so the extra 1-2% won’t have much of an effect on your take-home pay anyway. You’ll be amazed how much you’re contributing in just a few years and even more amazed at how much is already there.”
There are two lessons that can be derived here: The first is that it’s a good idea to take advantage of any deals that multiply your money (like employer matching programs). The second is, it’s okay to start contributing small amounts of money.
Many financial firms have a minimum deposit threshold that must be met before someone can invest. This threshold can be in the thousands of dollars.
If you don’t have that kind of money, consider looking at some of the best online brokerage accounts for beginners – to experienced investors. These online brokerage accounts often have very low minimum deposit requirements so even if you can only start with a couple hundred bucks, you can do so right away.
I don’t care if you have $50 or $50,000 to invest, getting started with a financial plan is key.
Like Haynes points out, you can always raise your deposits a little bit each year. Don’t let the fact that you don’t have a lot of money to invest discourage you from doing what you should be doing!
The media likes to point out people who are out of the ordinary when it comes to their financial situation. Whether it’s someone who won the lottery or someone who built an enormously successful business after being broke for so many years, there’s always an amazing story out there. While these can be fascinating, they often don’t line up with the experiences of the average person. That can be discouraging, so I encourage you to focus on making little changes that will improve your life.
Remember that even investing small amounts of money over a long period of time can have profound results. Due to the power of compounding, your investment account can grow exponentially. Sure, the more money you put in the better, but remember that time has a significant effect on the results as well.
6. Find contentment with what you have.
Ultimately, saving comes down to willpower and contentment. Do you have enough willpower to save? Do you have enough contentment to say “no” to an expensive purchase? If you can develop both of these qualities in your life, you will grow wealthy over time.
Really, all of this comes down to your attitude and mindset. Are you happy with what you have? Are you okay with not having more right now? Can you resist the marketing that is being thrown at you from multiple directions?
Once you can honestly answer “yes” to each of those questions, you’ll be a lot better off.