Whether you recently got a raise at your job, a large income tax refund, an inheritance or may just be spending a little too much on non-necessities, it is always wise to try to save your extra cash.
If you’re not yet contributing to savings, it’s good to ask yourself: “What is keeping me from setting aside money into savings?” Maybe you’re overspending or you already used your tax refund to buy that new outfit that you just saw at the mall or perhaps your monthly rent has increased. Regardless what your situation is, it’s important to make a plan and save using the “extra”. There is always the possibility of an unexpected expense or emergency and you want to be as prepared as possible to avoid getting into debt (or further into debt).
First, it is important to put together a household budget based on your current income and expenses. List each expense honestly and see what you have leftover; use the extra and set that aside into savings. If you determine you don’t have any extra money, then it’s time figure out where you can cut some spending. While this can seem like a daunting task, remember your ultimate goal: to build up savings for a safety net and peace of mind.
Here are some tips for smooth saving:
Set Spending Targets
Most of us pay our bills and buy stuff without giving it much thought. To a certain extent it could work, but it leaves room for error and could be costly because of the potential for overspending. This is especially true when it comes to expenses like food (dining out) or gasoline. By setting a monthly spending target that is affordable, it will help you stick to your self-imposed spending limit and avoid spending too much. For groceries, you can visit the USDA Food Cost plans website to determine your spending target. (Note: these are averages and may vary based on location and/or special dietary needs/restrictions).
Adopt Healthy Expense Control Habits
Even small steps can lead to savings. Adopt these money saving habits: turn off lights when you leave a room; lower the thermostat (even if it’s just by one degree); cancel unnecessary or forgotten subscriptions; substitute streaming TV services for cable; and bring your lunch to work instead of dining out.
Set a Monthly Savings Amount and “Pay Yourself” First
While it is suggested that we should save approximately 10% of our monthly net income, sometimes it is not realistic. However, saving something each month is better than saving nothing. Aim for a minimum of $25/month; while it doesn’t seem like a lot, you’re still making progress towards a solid emergency fund. Treat savings as a monthly bill and pay yourself first. Another helpful tip is setting up an automatic deposit from your paycheck to ensure that it happens.
In addition to creating a monthly amount to save like a bill, you will want to set aside a portion of any extras (e.g. tax refunds, bonuses, inheritance, or other cash windfalls like money from a garage sale). Dedicate a portion (2/3 or ¾ is a good start) of this money towards your emergency savings fund without touching it.
You should aim for at least $1,000 in savings, but ideally – to create a safety net in case of major emergency, such as a job loss or income reduction, a good goal is to have 3-6 months’ worth of household expenses saved up. While it is important to realize that there will be set-backs and slip ups, the most important thing to do is stay focused. While making major financial changes can be difficult, in the long run it will be beneficial for both you and your family. So just take it day by day and watch your savings grow!
Author Ray McCoy is a Certified Financial Counselor with LSS Financial Counseling.