Throughout your life you will be confronted with many decisions about saving and spending. Your goals can vary from smaller purchases like a new smartphone to larger purchases like a car or a house to long-term savings for retirement and unknowns. There are some life events you can plan and save for, such as higher education or starting a family, but it’s impossible to predict unplanned expenses. This is what makes saving important – so you are prepared for any kind of cost by putting money aside.
Many Americans spend more than they save, and almost every fifth person saves less than 5 percent of their income (according to a 2015 Bankrate survey). If you are hesitant to start saving or believe that it is not possible, consider it more as a way to exciting opportunities than as a burden. Chances are good that you will need the money for unexpected situations throughout your life, good and bad. Here are some basic steps to help you get started.
Create a budget and stick to it. When you create a monthly budget, you overestimate your expected costs. In this way, you are likely to end up with residual funds that can lead directly to savings.
Pay first. Determine a certain amount of money that you can clear away each month and treat it like any other bill. Put a portion of each paycheck away – ideally 10 to 12 percent – and watch your savings grow.
Save wisely. Choose the right saving methods to achieve your goals, and make sure you do your research to find the best interest rates.
Be ready for the unknown. Create an emergency fund with three to six months living costs in case unexpected costs arise.
Set financial goals to keep you informed. Use SMART targets to know exactly how much you want to save and how long it will take you to get there. If you set clear goals, it’s much easier to track your progress.
Reasons to save money in practice are good motivators. After you’ve secured an emergency fund and saved enough to support yourself for three to six months, you can start saving for what you really want. Think of short-term (ongoing monthly or annual purchases) and long-term goals (for important life events and large expenses) by using this SMART policy:
Inspire concrete goals. Setting a clear goal helps you focus on saving for it.
Example: Save enough for a summer vacation.
MEASURABLE Goals allow you to see the task at hand. By using real numbers, you can measure your progress along the way.
Example: A summer trip costs $3,000, and I’ve saved $800.
Achievable goals pay off. When you set your goal, make sure it’s realistic and within your reach.
Example: I know I can save enough money every week to pay for this trip.
RELEVANTE destinations make sense. Set a goal only if you know it makes sense in the long run.
Example: I’m saving for a shared apartment because it’s cheaper than staying in a hotel.
Time-related goals have a real deadline. Setting a timeframe for your goal will help you continue to work towards that goal.