We just ended the biggest instant gratification decade of our lives. Every financial borrowing tool was built to feed our immediate wants, if we paid for it later. Literally.
Excessive credit card use was an obvious offender. But the best was no money down mortgages. Who needs to save with zero down loans. But that period didn’t end well, for good reason.
Saving money is the foundation of a successful financial plan. That is why many of us want to save more money now. The hard part is not knowing where to begin.
So let’s get rid of the confusion, keep things simple, and get started now. Because once you’re started, saving money only gets easier.
Saving money has very different and distinct meanings.
We get hit by sales pitches everyday. I’ll be the first to admit, it feels better to save 20% off, than pay full price. But that 20% off savings, is spending disguised as saving. I still paid 80% for something. So far, I’ve never taken my 20% savings, put it into a savings account and actually saved it. Have you?
There is the obvious meaning of saving, were we rescue something from harm. Like saving people from using 20% off sales as a way to rationalize savings even though they’re spending money.
Then there is the act of taking $200 every month and putting it into a savings account. That’s the best kind of saving, the one that matters.
The hard part is putting savings into practice. Most people attack it like a New Year’s resolution. Either, you stay so focused on saving more money that it eventually becomes a habit. Which is what you want.
Or after a few weeks, or paychecks, you start forgetting until finally its forgotten entirely. And you’re left with a great idea that failed.
A few people can brag about achieving the former habitual saver status. Most quickly fall of the wagon. In fact, only 8% of New Year’s resolutions are successful. Why? Because change is hard when you only have a generic idea and no goals and plan to act on.
Almost every year, the top three resolutions are lose weight, get organized, and save more money. Every year people fail because these are just to general.
So you want to save more money:
- How much money?
- Where is the money coming from?
- For how long?
- What’s the plan?
These questions need to be answered before you start. By the time most people realize this, they have already given up. So they wait till next January to try again.
Instead of being a statistic, take some time to set reasonable goals. Build a successful plan around those goals. Then take action and save more money now.
Plan Your Goals
There are a million reasons to save money, but if none of them have any importance to you, it will never happen. Having said that, savings alone is enough, but it’s easier to get started when you have a purpose for the money. Maybe it’s a vacation this summer or a down payment for a home in two years.
Be as specific as possible, estimate all the costs, and set a reasonable time limit. Answer those important questions from earlier. Then build a successful plan around it.
In the end it’s useless without action. Your goals give a reason to follow through. You can sit here reading this, but if you don’t take action, cut costs and funnel that saved money into a savings account, this was a big waste of time.
The process of saving more money can be simplified: spend less and earn more. Then you save the difference. This isn’t rocket science. In fact, it’s almost too obvious. Because there is no secret sauce to saving money.
The hard part, where most people fail, is putting it into action.
Cut Out Big Costs
Here’s three places you can start to cut out big costs. From there, you can use the same concept with any other regular expenses.
- The first is credit card debt. It’s nothing but a big money suck. In 2012, credit card interest rates averaged just over 14%. Seriously! How would you like to make 14% on your money every year? Because that’s what credit card companies do. Outstanding credit card debt is a savings plan killer. The sooner it’s under control and gone, the faster your savings will add up.
- The second is to refinance other debt. Lowering your interest rate is an easy way to lower your monthly payments and free up extra money. You can start by refinancing your mortgage and car loan to a lower rate. A 1% lower interest rate can take a big chunk out of your monthly payments. And it lowers your overall costs.
- Lastly, there’s a reason why companies want you to automate bill payments. The packaged plans they sell are designed to create a steady cash flow every month. It’s the subscription model taken to the extreme. It has the added benefit of guaranteeing payments from the most forgetful customers. And the company gets paid whether you use it or not. Start by cutting out unnecessary expenses. Your cell phone bill and cable bill are a few examples. Are you using all your minutes? If not get a lower plan? Do you need all those premium channels? Switch to a cheaper package. Or cut the cord entirely and pay as you go with an online service.
When you’re done, open a savings account for all that extra money. Automate it and your savings will quickly add up.
Why do you think direct deposit from your paycheck to a 401k works so well? You only have to set it up once. The money automagically appears in your retirement account every paycheck. Then it automatically invests that money into the funds you select too.
Despite the genius of this system, most of us don’t bother to use it for anything else, except to spend money.
Yet, it only takes a few minutes to set up your own automatic savings plan. And then your savings account does all the work for you.
If it works for companies to make money, I guarantee it works to save money. You just have to take the time to set it up. Once done, there is no chance of forgetting. It will always be working for you.
Remember, to successfully save more money, you need to plan first and then implement it with useful tools around you. Saving even the smallest amount of money is better than nothing.