Unexpected costs happen all the time and if we are not financially prepared, we risk putting ourselves in more financial debt.
Now moment of truth, how many of us really have enough money saved to cover unexpected expenses? And for those that do, are you looking for new ways to save more? Maybe you are saving for a vacation, a better car, or even a house!
I guess what I am trying to say is that no matter where we are in our savings journey, we can always improve, so with an open heart and an open mind, I hope you enjoy reading these 9 easy steps to improve your financial fitness!
I won’t deny that saving can be a challenge, but similar to our other routines, it is a habit. A good reason many of us are probably not saving is because we have not made a habit of it.
Just like fitness, the health of your wealth is determined by your lifestyle choices.
So how can we jump start savings?
Start small and start simple. Regardless of where you are right now, saving is possible for everyone and the faster you realize this, the quicker you can jump start a new financial lifestyle.
Now are you ready to stop making excuses, and start making progress toward your savings goal? Great, now to help you with your financial fitness journey, consider these 9 steps to help you start on the right foot.
Step 1: Be Mindful of Your Finances
Being mindful is a wonderful quality to possess for all areas in our lives. It is especially helpful when it comes to your finances. If you are trying to change your financial situation, then it is time you start paying attention to where you put your money.
Find the best way to track your cash flow. There are many different ways to account for your spending, some in which involve little to no effort. There are a ton of mobile apps out there designed specifically for this purpose.
Apps like Mint, Pocket Guard, and Wally, are just a few that are designed to help users budget and track purchases. If you prefer a more old fashion way, consider writing down all your transactions and reconcile monthly with your bank statements.
I personally enjoy using Mint because it automatically categorizes my purchases and sends me weekly reports on my spending categories. It keeps me accountable and doesn’t involve much effort. To review “The 8 Best Budgeting Apps to Download in 2018”, check out this article on The Balance.
Step 2: Make a Financial Plan
If you fail to prepare then you are preparing to fail. If you are trying to improve your finances then you need to create a financial plan, in other words, “budget”. I know, I know, the topic of budgets can seem so deterring and boring, but they are extremely important.
If it makes you feel any better, everyone can use a budget. Scarcity is a real thing and it is universal, whether rich or poor, we all have unlimited wants with limited resources, so let’s start creating that financial plan.
If you never created a budget, rest assure they are not as difficult as you may think. A budget is a forecast of your spending and income. Think of how much money you usually take home in a month. Now think of your typical expenses in a month, ex. rent, car payment, insurance, investment contributions, and other bills or payments. Write all this down. After, subtract the expenses from your income. That number you just calculated is your budget, i.e. the money you have left for everything else! Now make it stretch!
Step 3: Set Goals
Setting goals is extremely important when it comes to money management and it doesn’t have to be just financial goals. Sometimes goals in other areas may unintentionally spillover to our finances. Having a weight loss goal may reduce the number of calories you intake, and even save you dollars.
Think of some goals like bringing your own lunch to work and making your own coffee. Not making those additional costs can save you money over the long run.
Then obviously there is setting monetary goals. Start off by establishing a strong emergency fund, a fund that contains enough money to cover 3 to 6 months’ worth of expenses. This will come in handy if in the case you lose a job, or a life event happens and you are out of work for some time. This way you do not have to use your budget or tack on more debt to cover unintentional costs. I can’t express enough how grateful I am to have an emergency fund.
Step 4: Choose the Right Savings Account
Start shopping around for a great savings account. One mistake I made early on was depositing money in an account that didn’t pay out interest, and if they did it was so low that it was unnoticeable. I bet many of you didn’t know that there are banks out there that will actually pay you to save. Look into online banks for your saving needs, most will offer higher interest yields because they don’t have the same overhead costs as physical banks.
I found Ally to be extremely rewarding to bank with. I started with them this past October and within the last 10 months they increased my rate 5 times. They compound their interest daily, so your money is making money. How rewarding is this!
Step 5: Make Sacrifices or Do it Yourself
When it comes to spending money, there is always an opportunity cost; choices always have to be made. As much as we all wish we could have everything we ever wanted, it is just not possible. We have to make tough decisions and sacrifice somethings now for later.
Think of something you can cut back on or even completely sacrifice for a period of time to add money into your savings. Obviously you want to focus on items that are more of a luxury than a necessity.
Things like buying coffee or tea, dining out, weekly haircuts, manicures and pedicures, or subscriptions are all things we can cut back on or temporarily stop doing to help save some extra dollars.
Another option is the good old “Do it Yourself” method. Let’s face it, convenience has a cost, but if you are trying to save money, maybe you should consider doing it yourself. Things like making your own coffee, cooking all your meals, painting your own nails and if you have the ability, changing your own car oil can save you some serious dollars. Try doing something yourself and deposit the amount it would normally cost into your savings and watch how fast it will grow.
Step 6: Pay Yourself First
Another important and most often neglected step in saving is paying yourself first. We get so caught up in trying to pay our bills that we leave nothing for ourselves.
How many of you have probably said at some point, “I’ll start saving money after all these bills are paid”, yet every month you find yourself in the same boat! It is time to break that vicious cycle, and one way to change is to start paying yourself first.
Find a way to stash a little something every pay period for yourself. Look into separating your direct deposit so a certain percentage goes into your savings and the rest into your checking. If you do not have this luxury, look into setting up automatic transfers within your bank or deposit the money you saved from sacrificing into your savings account weekly. Keep this amount realistic and be sure you still have enough left to pay your bills, hence why a budget is so important.
Step 7: Reward Yourself!
Life is meant to be lived and if you are saving money, you should be rewarding yourself. Make saving money fun! Set a goal for your savings account, and when you achieve it, do something nice for yourself, like take yourself out to eat or get your hair done. Incentivize saving so you can continue the habit.
After you have established your emergency fund, start saving for something special like a vacation or even a down payment for a new car or home. These are great goals to work toward and provide an extremely rewarding feeling when accomplished.
Step 8: Limit your Debt
Debt isn’t always a bad thing, however, there is good debt and there is bad debt. Being in debt because you are paying off a mortgage isn’t necessarily a problem. After all, with the proper care of a house, it has the potential to return you value.
The problem is if you are taking on bad debt. Being in debt because of shopping or because of consistently going out or buying things you either don’t need or could wait to have is a problem, especially if you are not paying it off at the end of every month.
It costs to take on debt, you are not only paying back what you took out, but you are also paying interest and for credit cards they are normally high. However, if you are in debt, don’t beat yourself up. It’s time to create that game plan on how you will tackle it.
Start compiling a list of everything you owe, and pay more than the minimum balance every month and most importantly, do not take on more debt!
Step 9: Stay humble
Remember to always stay humble, especially in a time when you may experience a pay increase. There seems to be a natural tendency to increase expenses when there is an increase in income, but when you do this you are not changing your situation.
Sure, you may have that newer model car you wanted, but now you’re stuck with a higher car payment and possibly more debt than before. When a pay increase has landed at your feet, look into saving the difference or saving a portion of the difference
Also remember, progress is progress. Sometimes I find myself beating myself up, comparing the amount in my savings to some executive’s income or wishing I had started earlier. No need to compare yourself nor regret, this is your own race.
In the long run, no matter when you started or how much you have saved, you are going to be grateful that you at least saved something, especially in a time where you need it the most. It is never too late to start saving and if you have a little something at the moment, why not start now.
Drive Thru Takeaway:
Whether you have been saving for a long time or have just started, congratulations on taking a step toward financial stability. Having a strong savings account will not only provide a safety net in the case of an emergency, but will also give you peace of mind. Whether you are saving 5 dollars a month, a week or even a day, save something and work toward that emergency fund. I promise you, it will come in handy when you need it!