The Ultimate Guide to
Saving Money
PART I - Introduction
Step right up, and welcome to The Ultimate Guide to Saving Money—the one-stop shop for all your financial needs.
Are you tired of living paycheck to paycheck? Do you find yourself struggling to make ends meet at the end of every month?
Look no further!
Our guide is here to provide you with a roadmap to financial stability.
Whether you're a student just starting out or an adult looking to finally take control of your finances, our guide will help you get on the right track.
We'll show you how to set realistic and achievable goals, build an emergency fund, and increase your income while decreasing your expenses.
Let’s get started.
The Importance of Saving Money
Nobody wants to live in constant fear that they are only one or two paychecks away from a total financial meltdown.
Unexpected events can happen to anyone, but the vast majority of Americans do not have even $1,000 set aside in case of an emergency.
Such events include losing a job, becoming disabled, or having a family member become ill.
Having a nest egg to fall back on in the event that unforeseen events disrupt your financial plans gives you a sense of security and peace of mind.
The following are some of the reasons why it is critical to save money:
1. Financial Security
Building an emergency fund will increase your financial security by providing you with an extra cushion to fall back on in the event of an unexpected event such as job loss or unexpected medical expenses.
Having a cushion provides peace of mind and reduces stress.
2. Reach Financial Goals
Saving is the foundation for achieving both large and small financial goals.
These objectives could include purchasing a home, starting a business or side hustle, or funding education.
3. Prepare for Retirement
Saving for retirement is essential for maintaining your standard of living in your golden years.
You can ensure that you have enough money to support yourself in retirement by starting to save early and consistently.
4. Avoid Debt
Saving for purchases and emergencies can help you avoid debt and reduce your addiction to credit cards, loans, and other forms of short-term borrowing.
By saving for purchases and emergencies, you're less likely to rely on credit, incur additional debt, and pay high interest rates.
5. Build Wealth
Saving and investing can help you in amassing wealth over time.
You can increase your wealth and achieve financial freedom before officially retiring by consistently putting aside a portion of your income and investing in a diverse portfolio.
For example, if you save $100 per month for 20 years and invest it at a 7% annual return, you will have $47,000 in savings.
Saving money is crucial for financial independence, security, goal achievement, retirement planning, debt avoidance, and long-term wealth building.
PART II – Understanding Your Financial Goals
Short-term vs. Long-term Goals
Saving money should be a deliberate habit that you form, but how and how much you save will depend on the types of goals you're saving for.
Remember that these goals are not fixed and will change as your own goals do, but the underlying strategies you learn will not.
There are two types of savings goals: short-term and long-term.
Short-term savings goals are those that you expect to achieve within a few months to a five years, whereas long-term savings goals are typically five to ten years in the future.
Let's take a closer look at the distinction between short-term and long-term financial goals.
Short-term Goals
Short-term goals can be achieved within a few months to five years.
These goals have specific deadlines and are more immediate than long-term goals.
Setting short-term goals requires a clear agenda and ensuring that they are achievable based on your current income and expenses.
Examples of short-term goals include saving for a family vacation, purchasing a computer, and recurring payments.
Long-term Goals
Long-term financial goals are typically met after five years or more.
Long-term goals do not have a set deadline and may change regularly over the years.
It's crucial to review and reassess long-term goals at fixed intervals throughout your life due to their extended timeline.
Life events like getting a new job or having children may impact your long-term goals, requiring a change in your savings plan.
Examples of long-term goals are paying off a mortgage or saving for retirement, which usually require a significant amount of money.
Saving for Short-term Goals
There are many different types of short-term goals, but the strategies for saving for these milestones are generally simple to understand and implement.
Here are a few well-known methods for saving for short-term goals.
1. Put Savings in a High-yield Account
Many people simply leave their savings in a bank account, not realizing that the account only pays a bare minimum of interest.
If you save in the right account, you can create a buffer against spending your savings and build wealth with a higher yield.
Because your goals are short-term, you'll still need access to that money, so withdrawing it should be simple.
In these cases, you can put your money in a certificate of deposit (CD), which has a set maturity date that corresponds to your objectives.
2. Save Every Month
You are effectively creating a savings plan to meet your short-term financial goals by saving every month.
This is part of your overall budgeting process, in which you save a certain amount of money each month for your short-term goals.
Assume you want to save $10,000 in a year to put down on a car.
You'll need to save enough money per month to reach your goals in 12 months, which is $833 per month in this case.
Separate an amount you want to save as soon as you get paid into your account so you can stay disciplined and on track.
3. Automate Savings
You can set this up through your mobile banking app or any third-party fintech app so that your monthly savings are automated.
These apps typically allow you to set a percentage or dollar amount for how much you want to save each month, and that amount is automatically transferred into a savings account linked to each paycheck.
Chime is one example of a fintech company that offers its own savings account, which automatically transfers a portion of your direct deposit into savings.
4. Sell Things you No Longer Use
You can always make extra money by selling used items you no longer need.
With so many different online marketplaces available, such as Etsy, eBay, Depop, and Facebook Marketplace, selling your items has never been easier.
5. Reduce Recreational Expenses
The simplest thing you can do is cut back on non-essential recreational expenses.
Non-essential expenses include eating out, buying alcohol or cigarettes, and taking Ubers.
Perhaps you can prepare your meals at home, eat more healthily and detox, buy some fitness clothing, and go for walks more frequently.
You don't have to live a hermit life with no fun just because you've cut back on your spending.
Rather, start with small changes to see what you can live without, and you'll develop the habit of eliminating certain expenses that won't affect your overall lifestyle.
Saving for Long-term Goals
Long-term goals last longer than five years and can change as your life and financial goals change.
Here are some common ways to save money for long-term goals.
1. Open a Retirement Account
The vast majority of Americans have no savings and are unprepared for retirement.
The earlier you start saving, the more likely it is that you will have a comfortable nest egg to retire on.
Opening a retirement account is one way to get started.
You will reach your retirement savings goals much faster if you have an account open.
In the United States, you can generally open two types of retirement accounts: IRAs and 401(k)s.
You can open either a traditional or a Roth IRA account with an IRA.
Because 401(k) plans are linked to your employer, contributions are deducted from your paycheck each month, and your employer frequently matches your contribution.
2. Have Separate Accounts for Each Long-term Goal
If you stay organized, you can keep track of your income and expenses, as well as which accounts contain which cash.
If you have many long-term financial goals but they are all in one account, doing mental math to figure out how much money goes where in the future may be frustrating.
It may be prudent to begin labeling accounts in order to keep track of separate long-term goals and allocate money accordingly based on your financial plans.
For example, if you're trying to pay for your child's college education, you might want to set up a college fund account and track that goal separately.
You could also use apps like Mint, which allow you to set specific savings goals and track your progress.
3. Start Building Passive Income
You can find new ways to grow your money once you start saving regularly. Investing in passive income investment instruments is one of these strategies.
These instruments could be bond funds or a portfolio of stocks that pay regular dividends.
In today's market, yields ranging from 3 to 6% are not uncommon.
The first step is to ask your bank if they have an investment division where you can open an investment account to begin contributing to these funds on a regular basis and making your money work for you.
Setting SMART Goals
Whenever you set goals, you should set SMART goals. SMART is an acronym that says your objectives should be:
Specific: Make them clear and actionable
Measurable: Quantify your goals
Achievable: Make goals realistic
Relevant: Important in your life
Timely: State the timeframe in which you want to achieve them
SMART goals are critical for short-term financial goals, especially when trying to achieve a specific goal in a short period of time.
Long-term goals are important, and you can take your time and be more flexible with them.
PART III – Building an Emergency Fund
Life is unpredictable, and unexpected events such as illness, car breakdowns, or home repairs can quickly put your finances at risk.
To avoid financial jeopardy, it's essential to have an emergency fund - savings set aside for unexpected emergencies like job loss or illness.
Having this financial safety net can help you handle the bills and provide an extra cushion during difficult times.
Why an Emergency Fund is Important
If you don't have an emergency fund, you'll most likely end up borrowing money, which will add to your debt, which you may not be able to repay on time.
You may also neglect your current payment obligations and incur additional debt on high-interest credit cards, all of which can have a negative impact on your life and general mental health.
The vast majority of people struggle to save a few dollars per month, with many living paycheck to paycheck.
However, it is for the same reason that creating an emergency fund should be a priority: if you have little savings to deal with emergencies, such as an illness, accident, or job loss, it can financially ruin a family.
Putting together an emergency fund is no easy task. It takes time, discipline, and some difficult sacrifices to make it work, but it is possible.
How Much to Save for an Emergency Fund
Did you know that nearly 40% of households can’t afford to pay cash for a $400 emergency?
Many people do not know how to take charge of changing their existing behaviors to improve their financial situation, but for those who want to become disciplined and change their fate, how much should they have in their emergency fund, anyway?
In general, if you have some debt (other than mortgage debt), a $1,000 emergency fund is usually sufficient to get started.
The next step is to do the following:
Review your bank statements and budget to calculate your average monthly expenses, including essential expenses such as housing, food, transportation, and utilities.
Use this figure as a guide to saving three to six months' worth of expenses in your emergency fund.
Make saving for your emergency fund a priority, and try to set aside a portion of your income each month.
Consider automating your savings, so a percentage of your paycheck goes directly to your emergency fund.
Keep your emergency fund in a separate savings account, so it's not tempting to spend it on non-emergency expenses.
Monitor and reevaluate your emergency fund regularly, especially if your expenses change, or you experience a significant life event, such as a job loss or illness.
This should help you build your emergency fund and provide a financial cushion during difficult times.
When a $1,000 Emergency Fund Won’t Cut It
There are, of course, always exceptions to the rule.
You'll occasionally need more than $1,000 saved up in case of an emergency, and this is usually due to two factors.
1. When you’re going to lose your job
If you've been informed that you're about to lose your job, you should start saving as soon as possible.
2. When you’re expecting a baby
When your baby is born and your household returns to normal, you can resume working on your emergency fund on a regular basis.
PART IV – Reducing Expenses
Importance of Cutting Unnecessary Expenses
We're all human, and it's sometimes unnatural for us to put off spending for instant gratification, even if it means that we shouldn't be spending our hard-earned money on something that isn't in our budget.
However, in order to save money for a better future, cutting expenses is a necessary exercise that is essential in laying a solid foundation for retirement savings.
Here are a few key reasons why cutting costs can have such a big impact:
1. Increased Savings
By reducing your expenses, you will have more money available each month to put into savings, investment accounts, or debt repayment.
This will allow you to reach your financial goals much more quickly and will give you peace of mind knowing that if an emergency arises, you will be well prepared.
2. Improved Cash Flow
Reduce your monthly expenses to free up cash flow, which can help you pay bills on time, avoid late fees and high-interest debt, and improve your credit score.
This lowers your mortgage borrowing cost because lenders view you as more creditworthy.
3. Reduced Stress
Worrying about money and finances can be extremely stressful, and it can have a negative impact on your relationships with friends and family.
You can reduce stress and enjoy a more relaxed lifestyle by cutting expenses, which is especially important as you approach retirement age.
4. More Flexibility
You have more options and flexibility in your life when you have more money available each month.
This can help you make informed decisions about your future, whether you want to travel, invest in new opportunities, or simply enjoy life without having to worry about paying your bills.
Here are a few ways you can cut expenses:
Bring your own lunch instead of eating out
Compare prices when shopping for groceries
Remove any unnecessary subscriptions or memberships
When shopping, use coupon websites and apps to get discounts
Instead of driving, take public transportation or carpool
By making small changes over time, you will reduce your expenses and be well on your way to a comfortable retirement.
Steps to Track Expenses
If you want to get ahead financially, you must stick to a budget. Tracking your expenses allows you to control your money rather than allowing it to control you.
It all starts with habit, and in order to make budgeting a habit, you must work at it and repeat the process until it feels natural and easy.
Let's talk about how to track your expenses and why it's important.
Step 1: Create a Budget
This is the only way to keep track of your expenses.
A budget is simply a money plan in which you track your monthly income and expenses. You must then decide whether to save, invest, spend, or give that money.
Making a budget allows you to ensure that your money goes where it should.
Here's what you need to do to make a budget that works:
List your income
Write down your monthly income (including side hustle income) and total it all up. This is the maximum amount you can work with per month
List your expenses
What are you paying for each month? List things like the following:
Food, utilities, housing, transport
Insurance
Childcare
Credit card debt
Extras: Subscriptions, restaurants, entertainment
Subtract expenses from your income
Congratulations if you have money left over after deducting your expenses from your income. You have money saved up.
Contribute these savings to your emergency savings fund and pay off existing debts as the fund grows.
Step 2: Track Everything
When you get your paycheck, side hustle income, or sporadic irregular income, write it all down and track the money inflows.
Keep track of every single expense you incur each month. Track everything from gas bills to bus tickets to Netflix subscriptions.
You'll know where your money is coming in and going out once you've completed this task.
Subtract all of your expenses from your sources of income to determine whether you need to change your spending habits to compensate for shortfalls.
Step 3: Set Regular Tracking Intervals
Whether you keep track of your expenses on a daily, weekly, or monthly basis, establish a routine for yourself and make it a habit.
Set these regular intervals at a comfortable pace for yourself.
If you use credit cards, it's also a good idea to stick to one main card if that's how you pay most of your expenses, so your account statements are streamlined and you don't have to go over a bunch of statements from other cards.
If you're married, make sure you're both working from the same budget and carefully tracking your expenses.
Ways to Track Your Expenses
There are several methods for tracking your expenses, but choose one that suits your personality and stick with it.
If you don't track your expenses, you might end up with an unrealistic budget that costs you money in the long run, and you'll never meet your financial goals.
But because we want you to succeed, let's take a look at the various methods for getting started with tracking.
1. Write it Down
Even though this is old-fashioned, it still works very well. Writing things down helps you remember them, which is helpful when you're dealing with money.
The downside is that you don't keep paper copies, and sometimes you forget which pad of paper you were keeping track from.
This makes it harder to get into the habit of budgeting.
If you like this method, go ahead and use it.
It's better than not making a budget at all, but there are other, more modern ways to stay on track with your budgeting and stay disciplined.
2. Spreadsheets
Keep track of your expenses manually using an Excel spreadsheet.
Excel also includes built-in templates for customizing your budget, with graphs and breakdowns appearing on the sheet automatically.
The only disadvantage of this method is that you cannot enter expenses as they occur because you are away from your computer.
It can be tedious at times to sit down and map out the expenses after they have occurred, and you may forget about smaller expenses that you may have forgotten about while out.
However, this method works well for many people, and you can get started with spreadsheets.
But do you know what works even better? It's your phone.
In the following tip, we'll explain why using your phone to track your expenses is most likely the best option.
3. Budgeting Apps
There are many budgeting apps available that make it simple to track your spending and see where your money is going.
Mint, Personal Capital, and You Need a Budget (YNAB) are some popular choices.
You can track your expenses on your phone as soon as they appear in your bank account.
You can enter your expenses in real-time using your phone, making it far more convenient than a laptop.
The only disadvantage of tracking expenses through apps on your phone is maintaining the habit and remaining disciplined, but it's probably the best way to keep track of where your money is going when compared to the other methods.
Creative Ways to Track Your Expenses
Here are a few unique ways to keep track of your expenses.
By keeping track of all your payments, you'll gain a better understanding of where your money is going and be able to make more informed spending decisions.
1. Gamify It
Set a weekly spending limit and try to stay within it; treat it like a game that you're trying to win. Reward yourself at the end of the week for sticking to your budget.
2. Create a Budget Jar
Assign a separate jar or envelope to each budget category, such as car payments, entertainment, utilities, and so on, and place cash in each jar or envelope as you spend it.
3. Track Expenses With a Partner
Share your budget and expenses with a spouse or friend. This can help you stay accountable and on track to meet your financial goals.
PART V – Automate Your Saving
If you want to achieve financial stability and achieve your financial goals faster, you should learn how to automate your savings so that you do less manual work.
Set up a system to automatically deduct a set amount from your income or checking account and deposit it into a savings account to start building your emergency fund.
In this section, we'll look at the power of saving automation in saving strategies and why it's such an important part of reaching your financial goals.
Why Automate Your Savings?
Automating your savings keeps you disciplined and on track to amassing a sizable nest egg for yourself. Among the advantages of automated savings are:
1. Consistency
You can ensure that you save a set amount of money each month by setting up automatic transfers or deductions in your account, regardless of other financial distractions you may have.
2. Convenience
When you automate your savings, you don't have to think about it anymore.
You don't have to remember to transfer money into your savings account every month, and you don't have to be concerned about forgetting.
This makes it less of a chore and will help you stick to your budget.
3. Reduce Risk of Overspending
You can ensure that money is saved before you have the opportunity to spend it by automating your savings.
This will assist you in avoiding temptations such as spending money on things you don't need.
Savings automation allows you to reach your financial goals faster.
It simply cannot be compared to manual saving, which requires you to set aside a portion of your monthly income.
If you're like most people who lack long-term discipline and extended effort, you're likely to forget or simply not save enough money over time.
Automated saving produces more consistent and reliable results, making it an appealing option for many.
How to Automate Your Savings
There are many ways to automate your savings, including:
1. Auto-transfers
You can set up automatic transfers from your checking account to your savings account at a number of banks.
This is a simple and effective way to accumulate savings over time without having to remember to do so manually.
2. Money Saving Apps
There are numerous money-saving apps available that can help you in automating your savings.
These apps connect to your bank account and transfer funds automatically into a savings or investment account.
Oportun and Qapital are two of the most popular platforms.
3. Employer-sponsored Retirement Plans
If you have a 401(k) or other employer-sponsored retirement plan, you can often choose to have a portion of your paycheck deducted and deposited into your retirement account automatically.
When automating your savings, keep in mind that selecting the right savings account is equally important.
Consider a high-yield savings account, which offers a competitive interest rate when compared to low-rate bank accounts.
The 50-30-20 Rule for Saving
The 50-30-20 rule is a well-known budgeting and saving strategy that can help you in better allocating your money and automating your savings.
According to the rule, you should divide your income into three categories:
50% for Necessities
This includes expenses like rent, utilities, groceries, and transportation.
30% for Discretionary Spending
This includes expenses like dining out, entertainment, and travel.
20% for Savings
This includes all types of savings, such as emergency savings, retirement savings and other long-term goals.
Allocating 20% of your income to savings will create a safety net for unexpected emergencies and help build your retirement fund.
You can easily automate your savings by using the 50-30-20 rule. This involves setting up automatic transfers or deductions for your savings category.
PART VI - Staying on Track
This section will give you a road map full of useful information and tips to help you stay on track with your financial goals and savings.
We'll go over three sections:
Reviewing and adjusting financial plans
Staying motivated and avoiding common pitfalls
Seeking professional financial advice
Reviewing and Adjusting Financial Plans
It is critical to review and adjust financial plans on a regular basis.
Sometimes life forces you to change your spending and saving habits. Let's go over how to review and adjust your financial plan.
The Importance of Regularly Reviewing Financial Plans
Reviewing your financial plans signifies that you want to make changes to your finances and make sure that they are in line with your current goals.
Regular reviews can help you identify areas where you should make changes.
Monitor your spending and saving habits, reevaluate your goals, and consider any changes in your life circumstances that necessitated the change.
How to Adjust Financial Plans
Changing your investment strategy, increasing or decreasing your savings rate, and adjusting your budget are all examples of ways to adjust your financial plans.
You must keep track of your progress and adjust your goals as necessary.
Tools and Resources for Financial Planning
When it comes to financial planning, apps, websites, and other online resources are extremely helpful.
These tools can help you create a budget, tracking your spending, and tracking your progress toward your financial objectives.
Mint, YNAB, Personal Capital, and PocketGuard are some popular apps and websites.
Staying Motivated and Avoiding Common Pitfalls
Setting attainable financial goals is critical for staying motivated:
1. Goal Setting
Divide large financial goals into smaller, more manageable ones.
Prioritize your goals based on their importance to you.
Make sure your goals are measurable and attainable, and set challenging but achievable goals to avoid discouragement.
2. Budget Optimization
Create a realistic budget and track your expenses using a phone app or other tool.
Avoid impulse purchases and excessive debt, and look for ways to increase your income and be compensated for your skills and value.
Negotiate bills and find free or low-cost activities to help save money and stay motivated.
Prioritize saving for an emergency fund with automated savings accounts.
Use cash-back apps and credit card rewards programs to your advantage to save money.
Seeking Professional Financial Advice
Good financial advisors can help you achieve your financial objectives, but it is essential to do your research and ensure that your money is in the right hands.
Reasons to Seek Professional Advice
Registered investment advisors, certified financial planners, and brokers are all different types of financial advisors.
Having a partner financial advisor can be a valuable addition to your team:
To get objective advice and expertise in financial planning.
To identify blind spots and biases in your financial plans.
To access specialized knowledge in retirement planning, tax planning, and investment management.
Choosing a Financial Advisor
When choosing a financial advisor, do your homework to make sure they're legitimate:
Check their credentials and reputation.
Do a quick online search and look at their LinkedIn profile.
Ask colleagues about their reputation and trustworthiness.
Examine their fees and services.
Ensure their approach is consistent with your financial goals and values.
Consider their previous experience with similar clients.
Review success stories.
Contact previous clients for feedback.
What to Expect from a Financial Advisor
Expect to discuss the following topics with a financial advisor:
Financial goals
Risk tolerance
Current financial situation
Advisor will review current financial plans and make recommendations to improve it.
The advisor will analyze current financial plans and make recommendations on the following topics:
Investment management
Debt management
Retirement planning
Tax planning
The advisor may provide one-time or ongoing financial advice and management services based on client needs.
PART VII - Conclusion
In conclusion, saving money is a crucial component of attaining financial success.
By adhering to the steps highlighted in this guide, you can take charge of your finances and construct a sturdy financial base for your future.
From identifying your financial goals and establishing an emergency fund to minimizing expenses and automating your savings, the secret to success lies in maintaining consistency, dedication, and unwavering focus on your end objectives.
Remember that saving money is a journey and not a destination.