If your goal is to achieve financial independence, or buy your first home, you must have a surplus of savings. To do that, you must save a portion of the money you earn. So, getting into the habit of saving is the way to go.
Contrary to what many believe, you don’t necessarily need to have or earn a lot of money in order to save. Many people think that they will start saving when they earn more money. Those who think that way end up never saving anything. Regardless of your age or financial situation, you need to start saving now even if you start small.
For some people, this can be hard to accomplish, because their monthly expenses exceed their monthly income. If you fall into that category, find ways to cut back on unnecessary expenses like shopping, eating out, etc.
As long as you save some money every month, you will be on your path to financial success. Also, how much of your paycheck you decide to put aside for saving depends largely on your financial goals, age, income, and what you are trying to accomplish. For example, if you are in your 20’s or early 30’s with no children and no family obligations, and have no to very little debt, it is always a good idea to save more of your paycheck.
Once you get into the habits of saving, your path to financial success is much clearer. Here are some steps to follow:
1. Create a Budget and Learn to Stick to It.
With a budget, you can keep track of your expenses and earnings.
2. Use Automatic Savings.
We all have heard the saying that “if you don’t see it, you won’t spend it.” Have your bank automatically transfer a certain amount — it can be as little as $100—from your checking account to your online savings account each month or whatever time period you wish. Avoid the temptation of doing it yourself every month. Why? Because, for one, you might completely forget to do it. Second, very few of us has the self-discipline to do that every month.
3. Use Online Saving Banks That Offer High Interest Rates.
Nowadays traditional banks don’t pay that much interest on their saving accounts. There are several online banks that offer a higher interest rate ranging from 0.90% to 1.0% on their savings accounts. For example Discover, an online bank offers 0.95% interest rate, which is consistently better than average. The interests earned on the money you deposit every month into your account will help your savings grow faster. So take full advantage of these online banks.
4. Save Some or All of the Money You Receive as Gift, Money You Inherit, Raise, Bonus or Tax Refund.
Just because it’s not hard-earned does not mean you should spend it freely and recklessly. Treat it the same way as you would with the money you’ve earned.
For more information, check out our article: 10 Simple Ways to Use Your Bonus.
5. Establish an Emergency Fund.
Life is full of uncertainty. We might suddenly lose our jobs, we might need money for a major auto repair, and we might become sick. Therefore, it’s important to set aside some cash for these emergencies. Without an emergency fund, every time we face an emergency, we will be forced to borrow money, which makes it easier to get into debt. A good rule of thumb is to have at least three to six times your monthly expenses in this fund.
Also, keep this fund separate from your savings, and don’t be tempted to dip in and use some of that money to purchase a TV, for example. Use it only for real emergencies.
In short, saving money each month can be difficult especially for those who don’t earn a lot. However, if you put aside a small portion of what you earn, you will be able to accumulate a large sum over the years. This can help you to reach your goals and achieve financial success.
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