Sometimes, the most difficult thing about saving money is how to start saving it. The following steps can help you learn how to save money and develop a simple and realistic strategy so that you can achieve all of your short and long-term goals.
Setting a budget is a key step towards saving, seeing as without a budget it would be difficult to track and monitor expenditures and curb them to not exceed the monthly income. To set up a simple personal or family budget, the following steps can be taken:
- Identifying the fixed monthly income, whether from a salary or any other source
- Identifying expenditures and classifying them into basic needs and luxuries for the purpose of controlling the size of excess spending
- Identifying fixed monthly expenses (loans, rent, instalments, basic foodstuff, other)
- Estimating a maximum ceiling for varying expenses (bills, house requirements, other)
- Designating a fixed monthly amount for emergencies
- Taking into consideration non-monthly periodic expenses, such as car repair costs and others.
- Deduct the sum of fixed, unfixed and emergency expenses from the total income. This would enable you to reach a calculation of the figure that can be stashed for saving every month. By formulating a clear picture on the size of monthly expenditure, known expenses can be organized into an applicable and amendable budget.
To ensure good results and begin the saving process, it is paramount to adhere to the set budget throughout the month. If needed, the budget can be split into weekly or daily budgets in accordance with expenses.
Tip: To follow up on your expenses, you can use free financial planning applications and solutions, available on Apple and Google stores, thus ensuring that your money managing process is registered and be able to set a simple and easy budget to support your saving efforts. Among the top available free apps in the market are ‘Money Manager’, which offers its own budgeting plans; ‘Money Lover’, an app that is both clever and simple; ‘Monefy’, which offers the option of adding new expenses and categories as they come up; and ‘Wallet’, a system that provides an understanding of the financial situation, allows setting goals and assists in drafting a solid budget.
Monitoring spending and expenses is paramount to achieve saving goals, and doing so requires sound planning and apt management to reduce expenditure when it is high, through identifying unnecessary expenses that can be cut back on, allowing a wider saving margin.
Below are a number of methods and instructions through which expenditure can be slashed to achieve responsible spending:
- Transitioning from daily to weekly purchases
- Cancelling unutilized subscriptions and memberships, particularly if they are automatically renewed
- Transitioning from luxurious to necessary consumption spending, including cutting back on the number of meals eaten out and spending less on each one
- Adopting a list of needs and requirements when shopping instead of relying on whims and desires (eliminate the fun while shopping)
- Following up on stores’ special offers and sales through which basic products can be purchased at lower prices or free items would be granted
- Avoiding the trap of buying from expensive brands
- Controlling your credit card spending
- Determining the amounts withdrawn from bank accounts
- Adopting environment-friendly behaviors by rationing the use of resources like water and energy at home
- Getting rid of unnecessary belongings in a way that would benefit you and others, by selling them at appropriate prices
Responsible spending does not mean eliminating all spending or depriving oneself from luxuries or joy, rather smartly obtaining the ones that enrich one’s life.
Setting financial goals helps in saving money and makes it easier, where clearer, more specific and more realistic objectives lead to a more efficient budget and plan, especially if it was designed in accordance with priorities, and while keeping in mind the need for keeping it flexible to fit life’s changing courses, through reviewing and evaluating the financial plan periodically.
To identify goals, you must think of what you want to achieve with the money you save. These goals could be interim ones, where a certain goal would be set for each phase in your life depending on its requirements. Goals can be classified into short-term ones, like repaying debts, saving enough for a vacation or covering the initial costs of marriage; medium-term goals such as buying a car, securing a first payment for a home or starting a business; and long-term goals, including securing higher education tuition for your children or guaranteeing decent retirement for your old age. With your goals set and categorized, you can simply determine the amount of money you need to save and the timeframe needed for saving the amount, and you can also identify the best tools and methods to achieve your saving goals.
Tip: Learn how to prioritize your savings goals so you have a clear idea of when to start saving. For example, if you know you’ll need to replace your car in the near future, you can start saving money from now.
If you are done planning your short-term goals, you can resort to a number of saving tools offered by financial institutions, such as:
- Saving accounts
- Fixed deposits
- Certificate of Deposit (CD), which allows depositing money for a fixed period of time with usually higher interest returns than saving accounts
- Accounts in capital markets or similar
If you are planning for achieving long-term goals, you can benefit from investment accounts, as they create an opportunity for greater returns as the market grows.
There are many other saving tools and methods, but choosing the best one requires a study of all options and saving limitations, among which are minimum balance allowed, fees and interest rates.
Most financial institutions provide the service of automated transfers between current and saving accounts, in addition to the ability to choose the time, place and means of transfers, or even splitting direct deposits, where a part of each monthly salary would be deducted and transferred to a saving account instantly.
The process of splitting deposits and setting automated transfers is a simple method for saving that unburdens one from the trouble of taking the steps manually every time and generally lowers temptations to spend the amount.
Monthly reviewing of the budget and checking achieved progress are key steps for saving, as they boost your commitment to the saving plan and help in identifying obstacles and resolving them early on. Understanding the mechanism for saving would help you find more means to achieve your objectives in a shorter span of time.