You may have heard that you should always have an emergency cash reserve of six months’ worth of expenses[i], or that you should be saving 20% of your income[ii], but after taxes, insurance, expenses and just plain old spending, those numbers can seem a bit intimidating, particularly if you are just starting out.
There are a few things, both tips and tools, that can help to make the process as simple and painless as possible.
Track your Spending:
Tracking your spending can be an incredibly useful exercise. No matter how much you have, tracking your spending can help spot fraudulent transactions, streamline some of those subscriptions you forgot about, trim down your spending and find opportunities to save more.
We tend to encourage a hands-on approach to this, as it may serve an additional purpose of helping to internalize some of those values. It’s one thing, for example, to have an app tell you that you spent $6,000 on dining out and quite another for you to look at your statements and realize that $3,000 of that was spent on coffee shops.
That being said, if you’re the type of person who isn’t likely to spend one or two hours every month itemizing your transactions then even expense tracking through an app or computer program could help. Some popular choices include: Clarity Money, Wally, Mint (by Intuit), YNAB, Mvelopes (by Finicity)[iii].
Budget:
If you know what your lifestyle costs, the next step is easy. That’s knowing how much you should save. In many cases, you’ll be able to estimate what you can save from what’s left after your expenses. If you are not saving enough, you may want to try scaling back on some of those discretionary expenses. You may want to start out small so that it becomes an easier habit to maintain like dining out three times a week instead of five, or only going to the movies once a month instead of three. Small things like these can add up in your savings, and you may also find that they have tangential benefits like dining out less often may mean eating healthier meals at home.
Personally, I like to reward myself when I come in under budget as well. If my budget for dining out is $50 a week and one week I spend only $25, I like to take that remaining $25 and put it into my savings. It’s not a part of my regular biweekly contribution to my savings, but a little something extra I was able to put aside. As you find these lifestyle changes easier and easier to stick to, you may even want to scale back even more, or you might find that you are happy as is and stick to just saving a little extra when you come in under budget.
If you find that you are having difficulties in sticking to your budget, you may want to give the envelope method a try. This involves setting a budget and making out envelopes for each part of your budget. Then each week, put in your weekly budget amount in cash in the appropriate envelope. Once you run out, then you can’t spend anymore for that category, barring emergencies.
Automation, automation, automation:
It goes without saying that if it happens without you having to remember, think or initiate it on a regular basis, then saving money is going to be easier. Most banks and financial institutions will allow you to automate money movements, something which you may take advantage of for bills and loans already, but you can also use it to transfer a set amount on a regular basis to your savings account or other investment account. Setting up an automated money movement can often be done through a banking app, online bank account or in person at a branch. On that note…
Take Advantage of Employer Match:
If you are currently working, your employer may offer some sort of retirement savings plan and if you are lucky they will also offer a match. Like bank automation, contribution to your work retirement plan can be done automatically with each pay check and an employer match will add to that retirement plan. This can be another easy method to save, although be aware that what you save with a work retirement plan will likely not be accessible to you for some time unless you pay a penalty and income tax. If you would like to contribute to an employer plan, you can reach out to your employer to explore your options.
Saving money is one of the oldest bits of advice in the financial playbook, and yet it is easier said than done. In fact, more recent generations may not be saving much at all. While 70% of millennials, for example, do have a savings account, 58% have a balance under $5,000 in their savings[iv]. In addition many of them have debts such as student-loans which prevent them from saving more. A survey by Insider and Morning Consult found that they are more likely to prioritize paying off the debt over saving if they had extra cash[v].
Regardless what generation you fall in, savings can play an important role in your financial well-being. For more information about savings, check out the FWDG Library and Resources tabs of our website, and if you have any questions, please contact us. We are here to help!
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[i] https://www.investopedia.com/articles/personal-finance/040915/how-much-cash-should-i-keep-bank.asp#:~:text=Most%20financial%20experts%20end%20up,person%20to%20find%20a%20job.
[ii] https://www.investopedia.com/ask/answers/022916/what-502030-budget-rule.asp
[iii] https://www.thebalance.com/best-expense-tracker-apps-4158958
[iv] https://www.businessinsider.com/average-american-millennial-net-worth-student-loan-debt-savings-habits-2019-6#and-the-typical-millennial-has-less-than-5000-in-their-savings-account-3
[v] ibid