The True Path to Saving Money
You’ve probably heard and read about experts talking about the secrets of getting rich and successful. Coaches and businessmen have written countless books about it and have given hundreds of talks about the subject. However, sometimes, they forget the most basic thing that helps set someone up for success – saving money.
It’s often skipped over because of its supposed simplicity. However, if it’s really simple then why are a lot of people struggling with it? Why are there people with high-paying jobs still hanging on the brink of bankruptcy and struggling with money management loans?
To guide you, here are the steps of the true path to saving money:
Step 1: Budgeting
As with any other plan, you need to create a baseline before you can even start saving money. This plan comes in the form of a budget. You have to know where your money is coming from and where it’s going. This will help you determine which expenses are not needed and can be cut off to put into your savings.
To make a budget for you or your household, start with the old-fashioned listing. List down all your sources of income – how much it is and when it comes, and compare it with your list of monthly expenses. Include your home loans monthly payments, groceries, electricity bills, and the like.
From this list, you can easily view your problem areas. These are the areas with excessive spending. It could be your entertainment habits or shopping habits. Identifying where and what they are will help you formulate a way to cut it back. For example, if you shop twice a week, you may step back and create a healthier shopping habit.
Step 2: Paying Yourself First
Typical money habits see people waiting for their salary or paycheck to be deposited into their account to immediately use it for groceries, utilities, and entertainment. Whatever’s left will be their savings – if there’s any.
This is one of the biggest and most common savings mistakes you can commit.
Pay yourself first. Treat your savings as if it was a bill you have to pay urgently, like a business loan that’s overdue. To make it easier for you, set up an automatic savings plan with your account that will allow you to automatically transfer a certain amount of money from your checking account to your savings account.
This way, you won’t even feel it!
Step 3: Live Within Your Means
Or even better, live below your means. Whenever a person’s salary or income increases, so do their expenses and lifestyle. While this is completely understandable – who doesn’t want to enjoy the fruits of their labor? – it can prevent you from building up your savings.
Spending less money than you earn is one of the basic tenets of the concept of cash flow. If you earn $500 and spend $550, then you’re now at a $50 deficit, which you’ll need to pay off before you can even dream about saving. It’s not even just $50 anymore since it’s going to accrue more and more interest the longer it takes for you to pay it off. If you don’t break the cycle, you might end up with a really bad credit score, at the very least.
At worst, you’ll find yourself in debt. Imagine if it’s $50,000 in deficit, with an interest rate of 3% and you only earn $100,000, that’s already half of your income without interest. It can take years and years before you can crawl out of that hole.
If ever you find yourself in this position, it’s best to call your financial advisor for wisdom and guidance.
These steps support each other and are very more like common sense principles. But it always pays to go back to the basics. Building good habits and good financial practices will slowly but surely help you achieve your savings goals.