Looking to save some money and don’t know where to start?
Today, I have a great article from Neiko Johnson on 5 things you can do to start saving money. Neiko and his wife paid off $240,000 of debt in 27 months and they share their finance knowledge and debt-free journey on their blog Secret to Finance. The primary focus of their blog talks about budgeting, paying off debt, money tips, building generational wealth, and increasing income with side hustles.
Saving money is a very common issue for many people during the current pandemic. Also, it’s happening to people in every income bracket.
On the other hand, it’s important to understand what areas to focus on so you can reach your financial goals.
That is to say, it takes hard work and a good plan to go from no savings to having a nice nest egg that can be used for an emergency fund, buying a house, or put away for retirement.
The great thing about saving money is it’s never too late. Here’s a plan with 5 tips that can help you go from an empty savings account to a healthy saving and improve the way you manage money.
1. Create a budget
Creating a budget is one of the most important things you must do when it comes to managing your money. Of course, creating a budget is critical, however, actually sticking to your budget plays a key role.
A budget can be difficult to start, but it allows you to tell your money where to go and how to behave. Certainly, it may feel like you’re restricted when on a budget. But, it’s all about how you view the concept. Let me explain.
A monthly budget creates freedom by giving you permission to spend when and where you want to.
Here’s an easy way to make a budget in 5 steps:
- Calculate your after-tax income
- Calculate your monthly expenses
- Choose a budgeting plan
- Write it out and commit to it (your spouse too! if applicable)
- Reconcile and revise as needed
There are several ways to budget. You should choose the method that works best for you and your situation. If you’re having issues choosing a budgeting method, check out this article to understand how to create a budget for beginners.
While you’re creating your budget, you’ll need to figure out new ways to save money. The easiest way to do this is by decreasing your expenses. You can cut out unnecessary restaurant trips, gym memberships that you aren’t using, and any subscriptions you no longer use.
The most common one to start with is eating out. You’d be surprised how much money you can save by cooking more at home. Once you have a detailed budget, you will uncover how much money is being spent on things that may not be necessary.
2. Get out of debt as fast as possible
Paying off debt is hard but it’s one topic we are frequently talking about when helping people with their money. Debt is anything owed to someone else, including student and car loans, medical bills, and credit cards.
Above all, having a large amount of debt will hinder you from reaching financial freedom. In other words, it would be almost impossible to be broke without using debt. But, you must manage your money the right way and have savings for your financial goals.
There are two main ways to pay off debt. Some people prefer the snowball method while others use the avalanche method. Take some time to figure out which approach works best for your circumstances. After that, get started on your debt-free journey.
Getting out of debt as fast as possible will allow you to save for your long-term goals. Ultimately, removing debt frees up money so you can avoid interest charges and put that money towards your financial future.
3. Start an emergency fund
An emergency fund is one of the first things you should do. In fact, an emergency will more than likely happen to all of us. So, we must be prepared for when it happens, not if it happens. You may have a medical emergency or a flat tire. Starting an emergency fund will make sure you have the funds when a storm happens.
I recommend starting with an emergency fund that’s 1-2 months of your monthly expenses so you can have a small cushion to cover unexpected life events. Once you get a better handle on your money, increase your emergency fund to 3-6 months of monthly expenses. The best place to park this money is in a high-yield savings account.
Also, during a pandemic like we’re currently experiencing, you may want to save 6 months of expenses if possible so you have more than enough money. If you’re not able to save 6 months, that’s ok. Just focus on having a fully-funded emergency fund so you’re able to breathe a little easier.
4. Evaluate your lifestyle
It’s very beneficial to take a minute to evaluate your lifestyle and see where you currently stand. This will allow you to reflect on how you got to where you are.
A great place to start is by reviewing your spending habits and see if you’re spending way more than you should be. Most times, people find places where they can cut back and save money. You always want to make sure you’re not spending more than you make. In fact, if this is the case, you will rack up debt very fast.
If you find yourself out of control with your spending after evaluating your lifestyle, you may need to make some adjustments. Create a plan to start living frugally. But, don’t cut your entire lifestyle where it’s not fun anymore and you feel miserable. Get creative on ways to save while still living life. With this in mind, the more you cut your lifestyle, the faster you can reach your financial goals.
5. Prioritize savings
Once you get out of debt and create a financial plan, you will feel more confident about your financial future. Saving money is all about delayed gratification and the ability to make smart decisions with your money.
Always plan to pay for vacations or gifts in cash. These are clear reasons to prioritize savings. Also, you should pay for your cars in cash. A great way to save for specific items is by using sinking funds. Sinking funds are used to save for something in advance.
By making savings a priority, it will become a life habit. You will feel less stressed because you know you have money saved up for any situation. You will also make better purchases and become more aware of where you’re spending your money.
I suggest creating an automated process to save money each month. You can simply set up an automatic transfer from your checking to your savings. Even if it’s only $10, it’s better to start small than not start at all.
Final Words – 5 things to do now if you have no savings
In conclusion, saving money is important. Set your goals and be intentional with reaching those goals. By getting out of debt and creating an emergency fund, you build confidence, inspiration, and a feeling of achievement.
To emphasize, this shows you can control your behavior and make great money decisions.
You’re now on your way to creating savings even if you’re starting with nothing. I see a lot of people change their money habits, and it’s great to see. You can do it!