Have you ever said (or thought) ‘I can’t save money’. You’re not alone, plenty of Americans feel the same way. If you work and are even thinking about saving, you are already doing better than a majority of the population. If you’re trying to save, then congratulations you’re already a step ahead.
Often, the results don’t match our expectations. So we’ve put together a simple, easy to follow list of common mistakes that hinder many from reaching their savings goals and tips to provide a better chance of being financially successful in the future.
Emergency Bills and Costs
There’s an old saying that “most people are a broken fridge away from having no savings”. Most households don’t have a good ‘buffer’ of savings to spend on one in case it breaks.
It doesn’t have to be the fridge. Maybe your car needs emergency repairs, or your child needs medical care. Without savings, all of these things can become financial emergencies.
You can do something about it. First, set up a bank account that is completely separate from your “everyday” banking. Then, set up 10% of your paycheck to go towards that account. This is going to slowly build up into your “emergency fund”. If you cannot contribute 10% of your paycheck, something as low as $25-$50 per paycheck could be very beneficial to helping you establish an emergency fund.
To add to your success, pick an account without monthly fees (many online banks offer this). To keep yourself on track, treat it like a locked piggy bank: money can only go in, and you can only ‘break’ the piggy back in case of a real emergency.
Budgeting Basics and Budgeting Better
Many may believe that building a budget is a time and energy intense exercise. Some think that they have to spend hours logging and tracking every single expense. Sure, that’s one way to do it. But avoiding it because you think it will be difficult is why many people spend more than they earn. It turns out there is a simple way around it.
The simpler, more sustainable way it to take a very basic approach, percentages. So all you need to do is make sure that each month (or each week, whatever you prefer) you are spending up to a set percentage of your pay check, and no more. We have a budget calculator that will do this for you.
Let’s do a simple example. Imagine someone earns $1,000 per week. They choose to only spend 60% of their pay each week. That’s to cover everything that is a ‘regular expense’ like their share of rent / housing, entertainment and food. So, 60% of $1,000 is $600. That’s their weekly budget! Easy, isn’t it?
The remaining 40% is for things that aren’t regular. So, 10% might go towards the ‘emergency fund’. Another 10% might go towards saving for an end of year holiday. And the last 20% might be towards some long-term goal like a new car or a home renovation.
Doing this has two big advantages. First, it is incredibly easy. And second, it moves up and down based on how much you earn. So if the person in our example earns only $800 one week because they miss a shift at work, no problem. Everything gets revised down because it’s all off percentages not ‘fixed dollar’ amounts. Same thing if they suddenly earn more a few weeks in a row.
Debt and Leaky Buckets
Think of all the money you earn and save as if it’s water in a bucket. You obviously want to keep as much water in the bucket as you can (savings) and also use the water when you choose to (buying things you want/need).
But you know what prevents that? Debt. Debt is like a hole in your bucket.
And if you have a ‘leaky bucket’ because of debt then your bucket (and your bank account) is always going to be leaking.
This is probably the simplest and most effective way to save better.
- Step 1: make a plan to eliminate your debts.
- Step 2: refrain from getting into more debt whenever possible.
- Step 3: focus on the end goal whether it be retirement, purchasing a home, or a vacation and keep in mind what is possible once you’ve eliminated your debts and can now save money towards the exciting parts of your financial plan.
That’s easier said than done. Speaking with a qualified, trusted financial advisor can help create the plans and teach you to stick to them.