you may have heard the phrase “pay yourself first.” it's not just a catchy saying; it's also sound financial advice. if you want to build up some savings, you need to start by saving at least part of your paycheck before you pay all your other bills. but how do you do it? here are a few steps that can help:
create a budget.
creating a budget is the first step toward saving money. a budget allows you to see where your money is going and make sure that it's being spent on things that matter, like rent and food. it also makes it easier to plan for the future--if you know how much money is coming in each month, it's easier to predict what costs may arise and save accordingly.
to create a budget:
- write down all of your income (including tax refunds) and subtract any recurring expenses like rent or student loans. this gives us our "take-home pay," which is what we have left over after paying bills each month.
- next, list all of our non-essential expenses--things like eating out at restaurants or buying clothes--and divide them by 12 months so we can calculate how much we spend in these categories over time (for example $50/month on clothes). then add up both lists together; this gives us our total available funds for saving!
set up a separate savings account.
- set up a separate account. don't use your everyday checking account to save money, because it's easy to spend what you've saved when there's no real separation between the two accounts.
- don't use a credit card, either--you'll probably end up spending more than you intended and paying off the balance with cash from your checking account (which would mean less interest).
- similarly, don't put your savings in an IRA or 401(k) plan that has fees associated with withdrawing funds early (like many Roth IRAs do). fees will eat away at any interest earned by those accounts over time. plus, if something comes up where you need access to those funds before retirement age (say, medical bills), having them locked away won't help much!
set up automatic contributions.
you can set up automatic contributions through your bank or credit card company. to do so, you'll need to log in to your account and select "transfers" from the menu options. from there, click on "add an automatic transfer" and follow the prompts.
it's also possible to set up automatic transfers through PayPal if you're using their service as well!
start with small amounts.
you can start with a little bit of money and then increase your savings as you get used to it.
you might be able to save $100 per month, but if that seems like too much at first, try saving $50 per month instead. once you're used to saving 50% of your income and feel comfortable with it, then go ahead and increase the amounts that you are saving over time until they reach 100%.
make saving a priority.
the first step to creating a savings plan is making saving a priority. you can do this by setting up automatic contributions from each paycheck into an individual savings account or putting money away in a jar every week or month.
if you want your savings to plan to be effective, it's important not only that you set aside some money for yourself and others but also that you don't spend what isn't there. you should avoid using credit cards as much as possible--even if they have low-interest rates--because they make it easy for people who can't control their spending habits (like many college students). also, remember that just because something was on sale doesn't mean it's worth buying; keep track of what goes out of your wallet so that once there isn't any more cash left over after paying bills, groceries, and rent/mortgage costs
you can create a savings plan that works for you.
- set a goal. if you don't have any specific goals in mind, think about what your future might look like and what that means for your finances. do you want to travel? buy a house? retire early? if so, how much will it cost? the answer could help determine how much money should be saved each month or year--and even where it should be invested (in stocks vs bonds).
- start small and build up over time. one of the most common mistakes people make when creating their own savings plan is trying too hard at first by saving too much at once--and then feeling discouraged when they lose interest later on because there wasn't enough excitement around their plans at first glance! so instead of starting with $100 per week like most financial experts recommend (which would amount to $5200 annually), try something smaller such as 10% ($50) per paycheck instead until things feel more sustainable before increasing again later down the road when things get easier."
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we hope this guide has helped you to create a savings plan that works for you. if you have any questions, please don't hesitate to reach out.
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