saving money

Saving Money: How to Create Savings Habits and Goals

Saving money is one of the most critical things you can do to improve your net worth. However, the concept of stashing money away may seem difficult, especially if you live paycheck to paycheck.

How can you make saving money a habit? What goals should you set? And can saving help you get rich (albeit slowly)? Spoiler alert: the answer is YES.

How to Make Saving Money a Habit

Personal finance experts often throw around the term “pay yourself first.” You may have heard that phrase before, but you might not know how to actually do it. Here are some steps you can take to put this popular finance advice to work and get on the road to saving money.

Create a Budget

The word “budget” has negative connotations for many people. For some, it means being unable to spend money freely or being tied to something impractical. I know that’s how I used to view budgeting, but it could not be farther from the truth.

Having a budget lets you see what money you have coming in and where it’s going. If you do it correctly, a budget will show you areas where you spend too much money and how to convert that overspending into savings.

Track Your Expenses

Tracking your expenses is really part of the budgeting process, but you can further define where your money is going when you track your expenses. What I am referring to here is keeping track of every cent you spend. 

I know it sounds tedious, but it can be done. If you have a smartphone, you can easily record spending when you’re on the go with handy apps. If you don’t have that option, keep receipts and record them on a piece of paper or a spreadsheet each day.

This practice will help you see where each cent is going and where you can cut back as you decide how much to put into each spending category. Make sure you budget for bills you can’t live without, like rent/mortgage, utilities, food, phone, internet, your car, and insurance.

Automate Your Saving

I was introduced to this practice years ago. Many banks today allow you to electronically move money into a savings account at no cost. You can do this weekly, monthly, etc.

My bank transfers money to my savings twice a month, and I don’t have to do anything. This allows me to save automatically without feeling the money coming out of my account.

Put Some Cash Aside For Fun

If you don’t have fun, what’s the point? You should always spend consciously and only put your money into things that you get value from, but if you don’t budget for it, you won’t have the money when you need it.

Fun money is important and should generally come out of your checking account. You could also spend fun money on your credit cards to get sweet travel rewards, but make sure you only spend as much as you can pay off each month in full.

Saving Money Is a Discipline

Saving money can be difficult for many people. I know it was for me in the past. Don’t allow that to be an excuse or hold you back. 

Maybe you can only afford to save $50 per month. That’s great, start with that! As time passes, you’ll hopefully be able to save more. In the present, take hold of the discipline of saving until it becomes a habit and is second nature for you.

saving money

Set a Savings Goal

Since you now know how to start saving money, take a few minutes to decide on a saving goal and implement a savings plan. Having a savings goal can even help you stick to your habit of making saving money a priority.

Here are some worthy goals to consider pursuing.

Emergency Fund

At a bare minimum, you should have an emergency fund. Most finance folks suggest you save at least three to six months of expenses to ensure you can survive a job loss or unexpected expense. I agree 100%. 

If you don’t have three months of expenses easily accessible in the bank, you might end up in a tough spot if your income disappears.

Having cash on hand is also essential in case an unexpected emergency arises. Sometimes, that emergency is a broken furnace or water heater. Other times, it is a new set of tires or a bad transmission.

The easiest way to build an emergency fund is by setting an automatic transfer in your bank account. A great option for this is Capital One 360. Capital One 360 has competitive savings account rates and allows for easy transfers. 

Build an Extra Cushion

Once you reach your emergency fund goal, you shouldn’t stop saving. I passed my emergency fund goal and started saving in my liberty fund, a bank account that will cover almost anything that comes up.

I may use it for a down payment on a new home, rental property, or car. If anything happens with my company, I can easily live on that money for a long time.

Saving for Retirement

Retirement is the biggest savings goal you will ever have in your life. When you retire, you need enough assets to cover the last ten, twenty, or fifty years of your life. Many factors come into play when determining how long you will be retired. Whatever your plan, you need to be ready.

A common guideline is that we will need to replace 70% of our income in retirement. Calculate that goal and how long you expect to live on retirement income to determine what you need. Or, you can use this retirement calculator from AARP.

When it comes to saving for retirement, take 100% advantage of all employer 401(k) matching. If you get a 100% match on 3% of your pay, put at least 3% of your pay into the 401(k) plan.

Next, put money into your Roth IRA. The maximum you can contribute to a Roth IRA each year is $6,500 if you are less than 50 years old.

Beyond that, you can always put more into a 401(k), up to $17,000 annually. The same rules apply to 403(b) plans from non-profit employers.

You Can Never Have Too Much Money

Something to remember when you are saving and budgeting is that you can never have too much money. Warren Buffet didn’t get rich by spending all of his income. He lives in the same house he bought for $31,500 in 1958.

If you save a lot, you are in great shape. Not saving enough is a common regret for people in their 30s, 40s, and beyond when working toward financial freedom.

saving money

Save Money and Get Rich By Doing It Slowly

My “get rich slowly” experience began when I was $20,000 in student loan debt. I was hardly earning enough to live in my lavish apartment, and then the student loan bills started to come in. I was scared. How was I supposed to survive, let alone save money?

Then, I was handed a Dave Ramsey lesson pack. There were seven steps to wealth, and they were laid out like this:

  1. Save up a $1,000 emergency fund
  2. Use the snowball method to pay off all consumer debt
  3. Save up three to six months’ worth of expenses in your savings account
  4. Invest 15% of your income into Roth IRAs and pre-tax retirement
  5. Save for children’s college education
  6. Pay off your home early
  7. Build wealth and give

This process was not a speedy one. After three years, I paid off all of my consumer debt, saved up my six months of expenses, consistently invested 15% of my income for my retirement, and worked toward paying off my home early. 

Because of my decisions regarding frugality, I amassed between $3,000-$4,000 each month after my living expenses were taken care of. It took a while, but think about what my future will look like!

My future holds things like no mortgage payments, disposable income of up to $5,000 monthly, real estate investments, income increases, and much more.

I do not say all of this to toot my own horn. I am writing it out because it is possible for anyone!

The problem with this plan is that it is NOT fast. You will need discipline. My advice is to find someone with a similar goal. If you can find this person and hold each other accountable, you will likely find your pockets overflowing with money in the future.

The Bottom Line

Saving money is an integral part of ensuring your long-term financial wellness. From cutting costs on expenses to putting money away for your financial goals, you can make a big difference in your financial health when you make it a priority to save money.

The process might seem overwhelming at first. However, by making savings a habit, setting savings goals, and understanding that getting rich won’t happen overnight, you can set yourself up for financial freedom.

Saving Money: How to Create Savings Habits and Goals
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