This is the first article in my series, Conserving Money, designed to impart learnings from my experience with financial planning to my children.
A critical component of conservation is saving and efficiently using our monetary resources. I know there are many different opinions on where to start with a personal financial plan. I believe the main thing is that you get started and take the steps to ensure your resources last for your entire lifetime. Seizing control of your personal resources and becoming financially independent and self-sustaining must be your goal, regardless of where you choose to start.
Savings is your best method to get you out of reliance on short-term borrowing, like credit cards and equity loans. Taking advantage of credit does have value. But, credit should not play a role in paying for regular living expenses or unexpected outlays of cash for transportation, health care, or loss of income. You want to have money set aside to pay these expenses and not take out loans. Once you have an emergency savings plan funded, paying off debt should be addressed. How do you go about starting
How Much Should You Save?
I have seen advice on this topic and the advice ranges from 3-12 months of your annual income. This would be a great destination, but I don’t think that needs to be your starting point. I would start with something more realistic like $1000. Why that amount? Well, to get started, you want to get your brain thinking about small denominations. If you don’t have any savings or just a little, trying to get to $20,000 sounds daunting, because it is. If you start with a modest amount, you will be more encouraged as you watch your savings grow. Also, an amount of $1000 will get you through most unexpected bills, like car repairs, a trip to the emergency room, etc.
Where Should I Place my Savings?
It may be easiest to start with setting up a separate savings account where you maintain your current spend/checking account. The good: This keeps all of your money consolidated in one application and prevents multiple logins or account statements. The bad: You will easily be able to access your savings and transfer money between accounts. This access issue may undermine your ability to save.
For this reason, I recommend researching saving and investing applications online. These companies specialize in tools, like rounding up your spending, to help you save money and build up your funds. If you pick a partner, like Acorns or Betterment, they can also provide access to investment tools that can help your funds grow more quickly (more on that in other articles). I recommend researching these options and others on the web using a site like NerdWallet.
Keeping your savings separately will help you leave those funds alone unless you have an emergency or you decide you need to access those funds for a big purchase item. The money in your rainy day account is for one of two things: 1) to avoid the stress in having an unexpected event drain your resources, and 2) to allow you to fund things you really want that fall outside normal daily expenditures. These should be the only two reasons you access the money in this account. As you see it grow, you will realize that you want to use this money for the occasions I outlined above and not for a coffee or a weekend getaway or a new bike, for example.
Let’s Get Saving!
Now that you have readied yourself and set up your account, you need to start saving! Budgeting would be helpful here but it is not necessary to get started. You can add it in as you start to accumulate savings. Budgeting will help your savings to grow more quickly. Here are some quick hacks to get your savings off and running:
#1 Split Up Your Direct Deposit
The best way to save money is to never let it get in your hands. You likely already have direct deposit established on your paycheck with money going straight into your spending account. Your strategy here is to take a small portion and direct deposit that amount into your savings account. I recommend setting that percentage anywhere from 1-5% to start. Your target should be saving 10% of your income. If you cannot set a percentage, calculate a dollar amount equivalent.
When you start with a small amount, you will likely not miss it. Remember, you will be able to access it if you encounter an emergency. You end up policing your spending based on the amount in your account and not what is coming in. Once you adjust to the subtle difference in your bring-home pay, you can adjust the deduction upward by 1-2% until you get to your goal amount.
#2: Comparison Shop Monthly Fees
Another way to get a similar benefit is to comparison shop the major services you buy monthly, like internet provider, phone, and, especially, insurance.
The reason you want to shop these services periodically is that these service providers play in very crowded, competitive marketplaces. When you compete that hard, you have to offer deals for people to switch to their service. Which customer ends up
Start by comparing your 1st monthly bill from when you signed on to your most recent bill. Is it similar? If yes, you may likely still be in a good spot. Has it gone up significantly? If yes, you should give them a call. They may be willing to switch you to a more competitive rate. If they do not, you need to go out shopping.
If you are able to drop your monthly bills, set up a monthly transfer of the amount saved (or part of it) from your regular spending account to your savings account. Alternatively, you could make the transfer yourself when you start paying your next bill. Either way, focus hard to save that money that you just saved through your comparison shopping.
#3: Set Aside
This idea may not be something you can do immediately, but it will pay long-term dividends for you with your personal, financial plan. When you receive a bonus or a raise in your salary, set aside a portion of that raise to your savings account. Any time you increase your income, you should split that raise between your rainy day fund, your 401k (future article), and your spending account.
An increase in your income allows you still have more spending money even though you will be saving a good chunk of it for later. You will not miss the income diverted away from your account because your spending money will also be going up. What you do not see, you will not miss and you will still have access to it if you really need it.
BTW, if you have a side hustle, this is a great way to boost your savings directly. All or the majority of this income should be deposited directly into a savings account, which can fund
#4: Pay Yourself for the DIY Project
This takes a lot of discipline, but if you can do it, you will feel great control of your finances. Did you make something instead of going out and buying it? Or, did you do a project yourself instead of hiring a professional? If the answer is yes to either question, bank some or all of the cash outlay you would have paid for that effort.
Why? This process has a two-fold opportunity to enhance your financial habits. First, when you put the money aside, you will really understand the premium you pay for professional help. And, you can evaluate how critical the professional job as compared to your homespun attack. Secondly, the process forces you to evaluate whether you need this project or whether you just really want it or think you need to have it? It could be a great project, but may not be a fit for the budget right now. Waiting for something rather than laying out credit for it will help you develop and mature your financial muscles.
#5: Round Up
Rounding up is a clever idea of which you should take advantage, especially if it is offered through savings provider. Basically, you are taking purchases and rounding them up to the next dollar amount. If your provider does this for you, you will not even notice it and it can be a subtle boost to your savings.
You can still do this on your
Keep Track and Adjust
As you get started saving, set a realistic goal for yourself and your account. Do you plan to save $50 per month? $100? Whatever you decide, track your progress against that goal and make adjustments. Be patient and try to focus on the trend line. Are you moving in a positive direction and how quickly is that moving for you? You may need to really scrutinize your habits and do more research on how to improve your results. This would likely be the sweet spot for focusing on the budgeting process.
Go Ahead and Get Started Today!
You can do it! It does require discipline like staying fit and eating healthy, but it is worth it. Once you get going, you can add in additional activities, like budgeting and debt reduction to further extend your gains. As you start to see progress, you will really see greater financial security and independence start to take shape.
You have the money to get started, although you may feel like you do not. The key is organizing it and setting some aside gradually so you are encouraged to save and watch it grow. The best part is that your monetary worries will lessen when that unforeseen event does happen into your life (which it will).
You are bound to have ups and downs. Find ways to encourage yourself so you don’t get frustrated and quit. You will make it. The hardest part is getting started. So, get out there and start saving today!