15 Tips on How To Make Your Savings Enough For 2020
Benjamin Franklin once said, “Don’t put off until tomorrow what you can do today.” Cliché as it may sound, but Franklin’s words cannot emphasize enough the importance of developing this one habit that is most helpful in the long run. We’re all told time and time again that it is important to save money for the future, yet our behavior just doesn’t seem to match our future selves.
Much of it has to do with our demand for instant gratification. Speed is everything, and we want to see the fruits of our labor and spend it right away. But while it is difficult to think of uncertain times, studies show that looking ahead and building a deep connection with our future selves can help us save more money now.
Social psychologist Hal Hershfield of UCLA’s Anderson School of Management and his team of researchers harnessed the power of virtual technology to analyze people’s behavior with regards to financial rewards. Their study suggests, many people tend to make poor and unhealthy financial decisions because they could not emotionally connect with the person they will become in 10 to 40 years.
Hershfield and his team let participants interact with their future selves by using virtual reality and a computer that can age people’s photographs. Their analysis revealed that participants who saw and engaged with vivid pictures of their future faces, with features that include age spots, fat padding, and gray hair, were willing to allocate about twice as much money to save for retirement. Those who interacted with their future images also had an increased tendency to choose later monetary rewards over immediate ones.
In contrast, those who seemed the most distant to their future selves were the least patient and couldn’t let go of the urge to spend more now. These insights show that in order to get better at saving for the future, we need to commit to the practice of sympathizing more with our future selves. By making better financial decisions now, we can ensure that our future selves will reap the benefits.
Nailing down healthy routines now will help increase our chances of being prepared for whatever lies ahead. Here are some tips to help you save for future goals.
Pay Yourself First
What many fail to realize is that one of the smartest things to do is to make savings a priority. Before spending on anything else, save part of your salary every single paycheck.
According to CNN money, a majority of the US population saves between 0%-5% of their income every month, a far cry from the suggested 15%. This shows that more needs to be done to raise awareness on the need to start saving now. Part of the take-home pay should be allocated to financial priorities like debt repayment, emergency savings, major purchases, and retirement.
It doesn’t have to start at 15% if it seems a bit overwhelming. It’s easier to adapt to a small change – you can start with regularly saving 10% of your earnings and making sure that you don’t use it. Besides saving, you’ll also learn how frugality pays off. You’ll get to manage living off what you have left. After getting accustomed to saving 10%, increase it little by little and work towards creating a better savings habit each time.
Automate Your Finances
A good practice that ensures you get to save a percentage of your income monthly is to automate your payments. Treat your savings as you would any other monthly subscription. Take the percentage out of our paycheck directly and automatically, without second thoughts. This can be done by setting up automatic transfers from each paycheck to your savings account.
Build an Emergency Fund
A healthy emergency fund is a must, as you’ll need the money to cover unexpected expenses like medical or dental emergencies, car repair, urgent home expenses, bereavement expenses, and other bills that you still need to pay.
Try to save enough to cover six to nine months of basic living expenses and make sure to use the money only in the event of an emergency. Keep the money in an easily accessible savings or money market account. With an emergency fund, you’ll be able to avoid expensive credit card debt because you have a stash to draw from when an unexpected expense comes up.
Set a Budget and Stick With It
You can’t save if you don’t even know how much money you have to begin with. Setting up a budget and having clear savings goals helps you have a holistic look at your overall financial situation. Know and understand your monthly cash flow so you can keep track of how much you’re actually saving and spending.
Check out and use different free budgeting apps and money tools that can help you see your net worth. These can also help you ensure your money is being well spent and allocated correctly so you stay on track towards reaching your savings goals.
Try to follow the 50/30/20 rule as diligently as you can. Keep essential expenses like food, water, and shelter under 50% of take-home pay; allocate about 30% of your earnings for your “wants” like traveling, new gadgets, and the like; and keep the remaining 20% for your savings.
Plan Your Retirement
Experts say that by the time you retire, you should have saved 11 times the amount of your final year’s pay. The sad reality is that this is very difficult to achieve. In fact, around 36% of Americans have nothing saved for retirement.
Regardless of your age or financial situation, you need to be saving for retirement. Don’t waste time and set up that retirement account. It doesn’t matter if you start small, but always keep in mind that you need to save for retirement consistently and wisely. The longer your money is gaining interest, the better off you will be when you hit retirement age.
Pay Off All Debts
Consolidating loans and credit card debt, and paying them off quickly should be top financial priorities. 41.2% of all households in the US carry some sort of credit card debt, according to ValuePenguin’s analysis of average credit card debt in October 2019. NerdWallet’s 2018 analysis of U.S. household debt also found that the average U.S. household with credit card debt has an estimated $6,829 in revolving balances, or balances carried from one month to the next.
The sooner you get rid of the debt, the better. Dealing with debt will help you effectively save by making sure your hard-earned cash doesn’t go to waste.
Take Advantage of Money Saving Work Perks
Companies and organizations are adjusting their workplace policies and benefits to keep up with the demands of a young workforce. These include money saving work perks that motivate them to grow at work by helping them deal with their financial needs and concerns.
Don’t pass up opportunities like catered lunches, free snacks, monthly entertainment subscriptions, and other perks at work that allow you to save money on daily necessities. Take advantage of employee stock options or offers to match your retirement savings.
Prioritise Your Needs and Avoid Impulse Buying
Reevaluate your spending choices and take time to analyze whether a certain impulse purchase is really worth it. It’s always best to think long-term, instead of instant gratification, when making a decision. Learn to say no if the purchase doesn’t seem to align with your financial goals.
Knowing and understanding the difference between wants and needs, and prioritizing the latter, are good savings habits. It helps if you can write down a list of your basic needs, wants, and big wishes so you’ll know how to properly allocate your money. Avoid the urge to impulse buy. Mostly, many things you buy do not seem all that necessary, and you save a lot if you could only wait for a day or two.
Use Cash As Often As Possible
Debt is most often the major barrier to our savings goals. Credit cards can easily trick you into giving in to that impulse buy. You’ll actually spend more when using a card because it makes purchasing seem less painful.
The best way to avoid credit card debt is to stop using it altogether. Buy things with cash as often as you can. Using physical types of money helps you practice saving because it effectively slows down many impulse buys.
Track the Small, Frequent Expenses
Little things can add up to big expenses quickly. Before you know it, your debt and expenses have grown to uncontrollable proportions. Check on your purchases monthly and diligently and identify which ones you regret the most.
Cut back subscription costs and monthly bills so you can save money especially on products you were not even using. Get creative and modify your environment to make it harder for you to spend. For example, you can try to avoid a frequent online purchase by deleting your payment information and address from the site and browser, so you have to enter them every single time you buy.
Learn More About Compounding
Study how compound interest works for you – it’s worth keeping money in a high-interest savings account because of the benefits of incremental gains. When you put money into an investment vehicle or savings account, your money accrues interest. This way, you could earn passively from your money and also get into better savings habits.
Consider investing in assets such as stocks, bonds, or mutual funds when saving money for long-term goals. These assets can be a bit riskier than traditional saving vehicles, but they have the potential to earn more.
Get Good Deals and Buy In Bulk
Frugality plays a big role in saving. Develop the habit of thinking through each purchase and looking at all possible options before buying. Hunt down the best deals and take advantage of opportunities to use coupons and promo codes.
Comparing prices and reading reviews in detail will also help you make the best buying decision. Consider buying sale items in bulk for non-perishable items like canned goods, cereals, dry goods, hygiene necessities, and the like.
Use Your Pay Hike To Save More
Celebrate that promotion or pay increase by getting ahead with your long-term saving goals. Put any pay hike you get into a separate savings account each month so you don’t notice the impact of the rise and avoid the temptation of spending it readily.
Take advantage of wage gains by committing future wage increases to savings.
Seek Help From A Financial Consultant
There’s no better way to learn more about the best savings strategy for you than asking a financial planner or expert. Consider getting professional help for evaluating your current financial situation, establishing saving goals, and setting up a plan to best achieve these goals. With expert guidance, you’ll be able to maximize your money efficiently.
Set Clear, Smart Saving Goals
Saving without intention won’t get you far. If you want to start saving today, make sure you know exactly what it is you are saving for. The biggest event most people save for is retirement. Other priorities include marriage, funding children’s education, a huge purchase like a house or a car, or vacation and travel.
Whatever your savings goal or objectives are, keep them in mind by naming each savings account after what it is you’re saving for. Put a monetary value and a time frame for each objective. This will help keep you motivated to stick to your savings plan.
There’s no harm in being a bit aggressive with your financial goals but going out of the line can hurt your chances of achieving them. Keep it realistic so you can stay inspired throughout your financial journey. You’ll need to set clear benchmarks so you can clearly define how much you should be setting aside.
When setting your budget, keep in mind that you always need to adjust to life changes. No matter how painful it is, you’ll need to accept your current financial situation to be able to establish goals. Big life changes, like job layoffs, divorces, and illness, will inevitably affect your budget. Do your best to amend your spending to reflect your new earning or income status.
Inflation will always have a huge impact on your financial goals. It’s best to always account for inflation when putting a monetary value to a financial objective that is far away in the future.
You need to define and classify your goals as short-term or long-term so you can better track your financial progress. Generally, any financial goal, which is due in the next three years should be termed as short term goal. Any longer duration goals are to be classified as long term goals.
By establishing clear goals, you’ll also be able to choose the right investment instrument to achieve them. You may go for keeping money for short-term goals in a Certificate of Deposit (CD), which may earn more interest than a savings or money market account. CDs require you to leave the money there for a certain period of time, and money market deposit accounts typically require you to maintain a high minimum balance.
It may be hard to be consistent at first, but it pays off to keep track of your financial progress daily. Take stock of how your investments are doing so you’ll know if you’re moving closer to your targets or not. By measuring everything timely, you’ll know when your savings rate is appropriate or not.
Don’t beat yourself up if your progress is slow and your goals seem far-fetched. Don’t give up everything just because you failed to meet your budget for a month. Your saving goals will always be a working progress, and the most important thing is to learn from your mistakes and try again.
Move forward and try to follow your financial goals as planned but keep an open mind and be flexible enough to make changes when the unexpected happens. Be firm with your commitment to forge ahead with your financial and savings goals, no matter how many times you fail.
Remember that you are going at your own pace and not anyone else’s. Try to avoid getting on the bandwagon and make sure that the goals you set are entirely yours.
The road to achieving financial freedom and stability is long and hard but developing a habit of saving will surely get you to success. Your future self will definitely thank you for making smarter decisions now.
Always thinking about and engaging with the thoughts and emotions of your future self when it comes to money matters is a surefire way to get you motivated to reach your financial targets. The power is in your hands, you can create the time and opportunities to make it happen. Don’t get caught up in getting by today, at the expense of your future goals.