Almost 60 percent of Americans believe it’s easier to cut down on take-out food than to save for their future. Even if you can get your financial plan off the ground, you might wonder how you’ll ever save enough.
The good news is that it’s easier to save money than you think. There are all kinds of tips and tricks out there, from cutting down on take-out to skipping your morning cup of joe.
If you want to make sure you’re saving enough for your future, though, you will need these insightful tips.
Create a future budget
Suppose you’ve decided to save for retirement. Current wisdom says Millennials should start saving now to make sure they have enough. That might sound like a high amount, but there are a few factors to it. One is how long people are living. Another is the likelihood they’ll live with a chronic illness. Other factors, like lifestyle, length of retirement, and more, also play a role. Inflation must also factor.
If you’re a soon to be mom or dad, you might have a different goal right now, such as saving up your kids’ college education. You’ll need to factor in tuition, textbooks, and living expenses. You might scope out what college tuition looks like right now. Then you’ll want to plan for those costs to go up. The younger your kids are, the higher those costs are likely to be.
You might be thinking a little shorter term. You might be thinking about a down payment for a home or saving up for a home renovation. You might even want to create an emergency fund.
This is why you need to set a future budget, which will give you a goal for saving. From there, you can begin to explore the tools and strategies you’ll use to reach those goals.
Strategize to save money
The next step is to find the tools you want to save for your future. It’s a good idea to use more than one tool. A savings account is a great start, but you may not be earning as much as you could. Similarly, it’s not always a great idea to put all your money in the stock market. Think about having a diverse portfolio that uses savings accounts, certificates, and more.
You might want to research specific options, such as an IRA for retirement savings. There might also be options for college funds. If you have short-term goals, then an IRA may not be the right choice.
Next, you’ll want to create a budget and understand your cash flow. Using tools like automatic withdrawals or an employer-sponsored retirement savings plan can help. You might decide to make automatic monthly contributions to your savings account on a specific day, especially around paydays.
Once you understand your cash flow, you can pick the right points to save. Taking a look at your budget also makes it easier to see where you can save money.
Try the 30-Day savings rule
This next tip helps you curb impulse spending by forcing you to differentiate between “need” and “want.” There are many temptations out there. People often feel pressure to buy something they want immediately. Instead, experts recommend taking the money you would spend on any item and putting it in your savings account. Leave it there for 30 days. At the end of the 30 days, if you still feel you need or want the item, you can take the money out.
In most cases, you’ll probably find you don’t need the item. You may have forgotten all about it! Better yet, the money has already made it to your savings account. Now you can let it continue to earn interest. This rule is a brilliant way to help tame your spending and get you saving more as well.
Consider lifestyle changes
When someone mentions changing your lifestyle, you might imagine they’re saying you should go live in the woods. The good news is that you don’t need to make drastic lifestyle changes to save more money.
Instead, consider minor changes that add up over time. Something as simple as shutting down your computer overnight or turning off lights can help lower your electricity bill. You could go to bed an hour earlier, save on electricity and get more sleep to boot! This idea may not sound like it’s going to save you much, but these minor changes can add up over time.
Making many of these more minor changes can help you lower bills. In turn, you’ll have more money in your pocket. That means more money that can go toward savings vehicles like share certificates or IRAs.
Understand how to use each tool
Before you adopt any savings tool, make sure you understand how best to use it.
Every tool has a risk profile with it. A savings account is a low risk, while the stock market is much riskier. Your savings account will earn steady interest, but it won’t ever reach more than its stated interest rate. Stocks can earn much more, but they can also lose money. That usually makes stocks a bad choice for short-term investments.
If you have a long time to save, then adopting a higher risk profile tool isn’t necessarily a bad idea. You may lose a bit of money in the short term, but most stock portfolios gain over long periods.
A smart move is also to use a mix of riskier and safer savings tools. You can keep some money in savings accounts and then diversify your savings with stocks, share certificates, mutual funds, and more.
Next, understand how to calculate interest. An interest rate that compounds monthly will yield more than one that compounds annually. Compounding interest always earns more than accounts that don’t have it. You can also think about reinvesting dividends or interest earnings. You may be tempted to take out what you’ve earned. Reinvesting interest in an account with compounding interest will help your money add up faster.
Review your plan often
Finally, it’s a good idea to review your strategy for saving regularly. A few things to consider:
- Start saving money.
- Look at the tools you are using and how they are performing.
- As you go through life, your goals will likely change too.
- You may not have kids right now, so you’ve started saving for retirement. If you do have children, you might want to focus on saving for their college.
- You may need to balance working on your retirement fund and helping them save.
- You might start with a short-term goal, like putting together a down payment for a house. Once you have the house, you might shift gears and look at your longer-term goals.
Whatever the case may be, your needs may change. Regularly reviewing your plan can help you make sure you’re saving enough for the future, no matter what it holds for you.
Start saving today
Once you get started, it can be easy to save money for the future you want. The steps outlined here will help you create a strategy, pick the right tools, and find more ways to save.
If you want to get started saving or you’re wondering what your savings account can do for you, it’s time to check in with your banking partner. They can help you review your strategy and make sure you have the right accounts to help build your future.
For more information and personal savings options, schedule an appointment here to speak with a Town & Country representative.