Back to the basics of saving money
This article is part of an ongoing series called Money Saving Monday. Each Monday, I share tips and techniques you can use to start saving money.
There are of course many ways to save money. I also firmly believe that saving is the foundation for building wealth. I’ve written about using points, kids eat free days, using SmartyPig, and even about how to buy an engagement ring online. In this article I wanted to get back to the basics of saving money and review the more traditional ways of saving money.
I can’t tell you how many times I’ve heard people say they are going to start saving by “taking whatever is left over at the end of the month and putting it in savings”. While this may work for some, for the majority of us there won’t be any money left over at the end of the month. If your money is anything like mine, it seems to have a way of disappearing.
The way to combat this is to budget. Budgeting allows you to spend your income before you receive it. Budgeting is a way of giving each and every dollar that you earn a home. This includes upcoming bills, expenses, debt payment and savings.
Creating a budget is simple and literally takes only a few minutes each day. All you have to do is list your planned income in one section, and our planned expenses in another. Expenses should include a line item for everything you will spend your money on. If you need some help, take a look at the guideline budget I found from Larry Burket. The amount of your income minus your expenses should be zero, indicating you given every incoming dollar a home.
Once you have the plan in place, just begin tracking your expenses. When the amount you’ve spent equals the amount you planned to spend, you’re out of money for that category. Yes, it’s really that easy.
Make your savings automatic
Once you have your spending plan (aka budget) in place, I would highly advise you make your savings automatic. Most (if not all banks) offer online banking these days and as part of that service provide the ability to set-up automatic transfers from one account to another. Once you know how much you want to save each week or month, login into online banking and set-up a transfer the day after you get paid.
I’ve found that when you have to transfer the money manually, you can sometimes manage to talk yourself out of it. When you make it automatic, it just happens. I even have it deducted from my paycheck and automatically deposited into our savings. Using this method, I don’t even really see it.
Utilize high interest savings accounts
One of the biggest savings mistakes you can make is to not let your money work for you. Many people place their savings in mason jars, their mattress, or low interest bearing savings account. Of course the later is far preferred over mason jars and mattresses. Even earning a small amount of interest is better than none.
Instead, look at some of the higher interest rate savings account options. Right now, all banks are paying fairly low rates, but some are significantly higher than others:
I’ve used both CapitalOne and INGDirect. I am a huge fan of INGDirect and even though their interest rate is a little lower I’ve maintained my savings accounts with them due to their websites ease of use and due to the high level of customer service they provide. I’m willing to trade .25% in interest for good customer service.
I’ve heard it said many times “If you don’t know where you are going, how are you going to get there”. This is true of saving money as well. Set up goals for your savings and develop a plan to meet those goals. For example, each year I set savings goals for both my property taxes and Christmas savings. I determine the amount I’ll need in both of these accounts by the end of the year, divide that amount by 12 and set-up automatic savings drafts for those amounts from my checking to my ING Direct account.
We also set both short term and long term goals. For example, right now we are trying to buy a house and had a goal set for the amount we needed to save up in order to buy. We also have longer term goals defined for retirement, future vehicle purchases, and investments.
Setting goals will help you get to where you want to be. They will give you focus and direction. When you reach them, make sure you celebrate or reward yourself. After all, you’ve worked hard.
Looking for even more ways to save money? Check-out my other money saving Monday tips articles via round-up #1 and round-up #2 or just browse the whole category. You can even read through the list of suggestions my readers offered up.
Did I miss anything? What basic savings ideas do you use? Add a comment!
Photo by: kalleboo