Today’s money hack is related to saving money.
Many people struggle with the idea of saving money. Perhaps they lack the right saving tools, or aren’t motivated to save money, or because they’re living paycheck to paycheck. Sometime, people simply forget to save money. Whatever the reason may be, if you have an income, no matter how paltry, this blog post will show you how to save money using different financial tools. These tools will help manage your money to ensure you grow your savings account as per your savings plan.
Why it is important to save money
Saving money is the building block of wealth accumulation, which means one generally cannot get rich if they fail to save money. A person’s financial independence is not defined by their income level, instead, it is defined by how much money they have saved up for future needs.
Consider Person A and Person B.
- Person A earns $12,000 per year and spends $11,000, which makes their total savings $1,000,
- Person B earns $150,000 per year and spends $151,000, which puts them $1,000 in debt each year.
By the time they both retire, Person A will be better off financially compared to Person B, despite their different income levels, simply because the former managed to budget properly and save money while the latter didn’t.
The ability to save also has great implications on a person’s debt status. One of the first goals of financial independence is to become debt free, and if we spend less than we earn, we can safely stay away from debt. In addition i this, folks who follow strict saving plans can use those funds to payoff any outstanding debt.
To grow your savings account, save first and spend later
When you hear financial gurus say, ‘Pay yourself first’, they mean you should set aside a portion of your paycheck as savings, as soon as you get the money each week or month. This is essentially how you should be saving your salary.
Once you meet your savings goal, be it 5% or 20% of your income, you are free to spend the remainder of the money in any way you choose to. To decide how much money to put into your savings account, you can use a savings calculator.
The alternative arrangement for saving money is to consider money leftover at the end of the month as your savings. Unfortunately, this method doesn’t ensure a growth in your savings account because you may end up spending all your money to cover bills and other needs or wants. Even if you do manage to save money towards the end of the month, you may not have saved enough to meet your savings target. This uncertainty will make it really difficult to conduct any financial planning.
There biggest benefit of ‘saving first and spending later’ is that you will meet your savings target each month, and then can spend the rest of your money with a clear conscience about being financially responsible. Of course, one has to make sure that no extra debt is collected in order to cover your expenses, because that would defeat the purpose of saving money.
Separate your savings from your current/salary account
Once you have decided to save first and spend the remainder of your salary, you must decide how to put the money aside. If you happen to create a budget by physically placing cash in envelopes at home, you will need a separate envelope for the savings. This method is useful if you wish to save money without a bank account.
Alternatively, if you budget your income using a print out or a soft copy of a budgeting spreadsheet, perhaps in a money saving app, while your money rests in your salary account (usually a current or checking account) you will need to mentally segregate the money to achieve your savings plan and to stop yourself from accidentally withdrawing those savings during the month.
Yet another way to set aside the savings is to open a separate savings account specifically for depositing money from your monthly income. This way, you can easily avoid spending your savings and keep better track of how much money you have successfully saved for your emergency fund, retirement or other future goals.
If you’re still not sure whether you should put your money in a savings account, remember that they offer interest income too, which means you can make money with savings account. Money growth calculators can be used to figure out the impact of interest income on your savings account.
Automate your savings to make sure you grow your bank account
If you choose to open a savings account for yourself or to open a child saving account, to teach your kids about saving money, you can either transfer the money from your salary account yourself or automate the monthly transactions. With each transfer, your bank account will grow, taking you one step closer to your financial goals.
When you rely on technology to implement your savings plan via automation, you can do away with the hassle of remembering to save money every month. This allows you to automatically budget your savings so you never miss a payment, making you a smart saver. This is why the best way to save money is probably to automate the process.
Now let’s get down to how you will ‘automate your savings’. Here are two different ways you can save using this effective money saving technique:
1. Ask payroll to setup a direct deposit scheme for a savings account
Ask the payroll staff at your company to setup a direct deposit scheme for a savings account. Instead of the entire monthly salary being transferred into your current or checking account, a small portion of it is directly deposited into your savings account, or an investment account that you previously opened.
2. Setup an automatic money transfer scheme with your bank to deposit money from your current account into a savings account
These days, online banking platforms offer a wide range of services, such as utility bill payments, mobile phone airtime purchases and automatic money transfers from one account to the other. Using no more than a few clicks, you can quickly setup an automatic saving mechanism where a pre-defined sum of money is deposited from your salary account (checking/current account) into your savings or investment account, at a specified date each month. This financial service is actually a recurring transfer that takes place automatically through the online platform provided by your bank.
Now wasn’t that easy? You no longer have to worry towards the end of each month about not being able to save enough or save at all. In fact, according to Investopedia, automatic savings make it easier to stick to your personal budget and prevent overspending.
Once you start saving money regularly, no matter how little the amount may be, you can begin your journey towards financial independence. Use a savings calculator to determine how much money you need for various financial goals, such as setting up an emergency fund, purchasing a fixed asset (like a house or a car) or even saving for your retirement.
It’s never too early or late to start saving, so start now.