Saving money is an important part of handling your money responsibly. Many people think they will begin saving money when they get the next raise or a better job. It is possible to spend more than you make no matter how much you make. There are several strategies you need to employ to save money effectively. It is important to be proactive when you save money so you can build wealth.
A budget is your biggest tool to help you save money. In a budget, you set the limits on how much you want to spend on different categories. A budget tracks your spending letting you know when to stop spending. It also allows you to keep your spending in line with your current financial goals. You can adjust spending in some categories to allow you reach other financial goals, such as home ownership or going on vacations. For example, you may cut back on eating out so you can go on nice vacations each year. It allows you to consciously make the choice about which is more important to you.
2. Make Saving Automatic
Just like you have your retirement contributions automatically deducted from your paycheck each month, you need to set up your savings so that it is automatic. You can have money transferred into your savings account or into your investment account automatically on payday each month. This way you do not need to worry about doing it yourself and the money will always be available for the contribution amount. Once you adjust to the amount you are contributing you will not miss the money in your budget.
Just randomly putting money away is not enough incentive for most people, unless they are natural savers. If you assign the money a specific purpose, it is easier to stick to your savings goals. For example, you may be saving up for a down payment on a home or for your child’s college education. Another way to help you is reward yourself when you hit milestones. For your first $10,000 in savings reward yourself with a nice vacation, and do it again when you reach $50,000 and $100,000. Depending on how long it takes you to reach your goals, you may need to set different goal milestones.
Once you are comfortable with your budget and you can easily follow it, you may want to work on reducing some of your expenses even further to increase the amount you save. This depends on how tight your money is and the goals you are working towards. Even if you feel you are at your perfect balance of saving and spending, you should shop around for your services once every two years. You may be able to find a better deal on television, phone service, car insurance and other services with set monthly fees. Looking for a better deal allows you to increase the amount you save without drastically affecting your lifestyle.
As you work to build wealth, you will reach a point where your savings is contributing as much to your account as you are. The best way to make this happen is to choose the right investment accounts for your savings. Your emergency fund should be in a savings account at your bank, usually a money market account offers a higher interest rate. Depending on when you need your savings you should consider investing in mutual funds to help you earn a higher return on your money. Real estate, such as rental properties, can also provide a steady source of income, but you should purchase any investment properties with cash.
Many people do not enter the stock market because they are unsure of how to invest or how to choose the best mutual fund. A financial advisor can help you choose the best accounts to help you reach your goals. Mutual funds are safer than individual stocks, since they are spread over several different stocks and if one company fails you will only lose a portion of your money. A good financial advisor should be able to explain the risks and benefits of the fund types and help you determine if you need to be more or less aggressive to reach your goals. They should listen to any concerns you have and be willing answer any questions.