Saving Money Effectively Even if You’re Bad at Saving
Why is it so hard to put money aside? Or, to put it differently, why does it appear like saving money is so difficult? I believe it is a fairly typical question that many people have.
We might have more healthy savings account balances if money management was easy. Saving money can be difficult; you'll have to work extra hard to resist distraction and keep to your budget.
When it comes to saving practices in the United States, the data is sparse. As per the Associated Press-NORC Center for Public Affairs Research, two-thirds of Americans would strive to come up with $1,000 in a crisis. As per the Los Angeles Times, the average American puts less than 5% of their expendable cash into savings. Twenty percent of Americans do not save any of their yearly income, and those who do, save in little amounts, as per CNBC.
The thing becomes more complicated if you don’t have an enthusiastic money-saving mind. You might find difficulties to understand how to do it, or could not initiate the plan in a proper way. So, here I am going to discuss how to save money even if you are bad at saving.
But first, we need to check out a few important things that are related to our discussion.
Why it’s so difficult to save money
Below we’ll discuss why saving money seems to be so difficult.
a. Increasing Costs of Housing, Schooling, Healthcare, and Care for children
Housing, school, healthcare, and childcare expenses climb while incomes do not keep pace.
When compared to median pay, millennial wages are lower than those of Gen-Xers or Baby Boomers in their work lives.
b. Overall debt amount
Debt is becoming more of a concern and a challenge in our culture, and it's also a significant impediment to conserving money. Saving money is often the last thing on people's minds, what with rising student loan fees and credit card debt. Savings may not be a priority depending on the amount and interest rate of the Debt.
Paying off Debt while saving money along the way, on the other hand, is achievable and maybe the best option for you. Both can be beneficial to your finances. According to research released by the Federal Reserve, 43 percent of Americans spend more than they earn each month, causing them to borrow and repay the difference with credit cards.
c. Not Bringing in Enough Money
Salaries are not increasing at the same rate as other living expenses. It is tough to save money as a result of this. At the same time, you may increase the amount of money you make.
Hardly things will help you become rich or generate a tremendous fortune, but they can help you begin saving money and get out of the limbo of not saving.
d. Lack of financial knowledge
We do not understand or know as much about our money as we should. This applies to saving money, but it also applies to a variety of financial topics.
Isn't it challenging to save money or invest when you have no idea what you're doing? Saving money is a simple notion, yet it comes under the umbrella of financial management. Saving money becomes difficult if you don't understand debt, budgeting, credit cards, and other financial concepts.
e. Inflationary Lifestyles
What do you do with your money if you are lucky enough to earn a good income or receive a generous raise?
People often become contagious with lifestyle inflation, which means that when their income rises, so does their expenditure.
It's simple to overspend and afford more items. However, be cautious; you may be comfortable spending more but gradually fall into a financial trap. With lifestyle inflation, even high-income people may find it impossible to save. Money doesn't imply you should spend it just because you can now. Saving cash is hampered by instant gratification and luxury.
f. Failure to Keep Track of Your Spending
Saving becomes tricky if you don't start tracking your expenditures since you don't know where all of your money is flowing. There might be several ways to cut back on spending, eliminate specific costs, and help you start saving money.
While going out with buddies and meeting up is fun, it can also lead to you spending more money than you intended. It's about striking a balance and knowing when to call it a day/night. You may go out to see friends if you live paycheck to paycheck, but you should rarely buy anything. You should still have fun and interact, but your spending should be kept under check.
Saving money isn't as enjoyable as consuming it, but it can have significant ramifications for failing to set aside money from each paycheck.
Consequences of not saving money
a. Poorly prepared for unexpected events
You'll be financially incapable of dealing with unexpected situations if you don't save any money. Unexpected and harmful events occur in life, and while not all of them will cost you a fortune, some will, and you must be prepared.
Building up an emergency fund for these types of circumstances is strongly suggested. 3-to 6 months' worth of costs is sufficient and will save you from incurring debt to cover unforeseen needs.
b. Incapable of financing major life events
Not saving enough funds can have serious consequences when funding important life events such as weddings, family trips, or homeownership. Remember, the more money you save today, the more money you'll need later, and long-term gains need a short-term sacrifice.
Due to the benefit of compound interest, saving today can imply much more spending later, relying on how and where you save it and invest your funds. Don't worry about how much debt you've taken to pay for special occasions like weddings, family reunions, or vacations. The more energy you waste worrying about it, the less time you get to enjoy the essential things in life.
Enjoy every last second of these achievements, knowing that you paid for them with your hard-earned cash. You'll have a lot more fun with them, and you'll thank yourself afterward.
c. You'll have to work all of your life
One of the most severe consequences of not saving any funds is becoming entirely reliant on your income. If you want to keep your spend-first lifestyle, you should labor until you die.
Who wants to be the one to do it? That sounds like a nightmare.
The more you save and invest in your early days, the more flexibility you'll have later in life to do whatever you choose.
d. You might face severe debt problems
The significant impact of not saving a lot of money is that you might almost certainly end up in debt problems. Getting into debt is really a result of failing to save money. Even for people who save money, staying out of debt is difficult.
Falling into debt also can elicit various emotional responses at the same time. Experts say that being in debt can cause significant emotional reactions such as rage, tension, and melancholy.
Depending on the form of credit you utilize to complete any payment, consumer debt typically has a relatively high-interest rate. Using borrowed funds such as money from personal loans or high-interest payday loans to pay for items that aren't assets is usually a wrong choice, irrespective of the interest rates. Spending money on irrelevant items and luxurious services through high-interest credit cards can also increase your debt burden without increasing actual assets.
If you do not really save any cash, you may be in deep debt. This might be demoralizing mentally because any money you earn in the future will be utilized to pay off your debts. It's like a debt revolving door, and it's a disaster. Avoid this at all costs; it's a complex cycle to break free from.
However, there are several options that you may choose to get out of debt, even if you are having financial hardship. If you are falling into huge credit card debt, you may take help of a debt management company and consolidate your credit card bills. You can take out a balance transfer card (with 0% APR introductory offer) and transfer your high-interest credit card balances over there; and pay off the balance gradually without paying a single dollar as interest.
You must remember…where there's a will, there's a way!
How much money should you save?
You can determine the amount based on two goal factors.
a) Based on timeframe:
- Less than a year – You can utilize your short-term savings to go on vacation, purchase holiday gifts, or cover your taxes.
- Less than 1 decade – You could use this money to repair your fridge, fix your car, cover a large insurance deductible, remain solvent when you're between jobs, or put a down payment on a house in less than a decade.
- Lifetime – The ultimate long-term financial aim is retirement.
b) Based on the type of goal:
- Retirement – You should save aside 10% to 15% of your annual salary for retirement.
If you save 5% of your paycheck and your employer contributes another 5%, you've reached a savings rate of 10%.
- Emergencies – Create an “emergency fund” that really can sustain 3-9 months of your living expenditures.
- All the others – Create a list of important expenditures during the following ten years.
So, what would be the final rule of thumb you can consider?
At least 20% of your salary should be set aside for savings. More is good; less may save for a more extended period of time. Similarly, another 50% (max) should be allocated to essentials, with the remaining 30% allocated to discretionary items. This is defined as the 50/30/20 rule of thumb, and it is a simple and effective way to save your money.
Now we have come to the final and the most important issue, and that is saving money effectively even if you’re bad at saving.
Let’s find out.
How to save money fast if you are awful at saving
a. Pay yourself first
You might overlook savings frequently since there is typically not enough left over after paying for everything else, such as rent, grocery, gas, and a few evenings out, to add to the funds until your next paycheck arrives.
The idea is to think of yourself, or more specifically, your savings account, as a debt that must be covered before any other expenses can be handled. Before spending any disposable cash, set aside a certain amount of your paycheck and deposit it into your savings account. And once it's in, it's not going anywhere.
b. Automate your savings
Schedule automated transactions for your bills when you're configuring automatic savings deposits. It can prevent you from getting late fines, saving you a lot of money while protecting your credit rating. Missed payments would significantly lower your credit score, resulting in higher interest rates whenever you borrow. If you're qualified for the cheapest deals on loans or credit cards, paying the bills on time and maintaining a solid credit score can result in further savings.
This can be accomplished in several ways. You can have a part of your paycheck routinely deposited into your savings account if you ask your employer. You can also arrange a dedicated deposit from your transactional account when payday arrives. This is something that most bank accounts will allow you to accomplish.
c. Negotiate your bills
While some obligations, such as rent or mortgage payments, are unavoidable, you may have some flexibility with others.
For example, you may even be able to get a better price on your vehicle insurance or cell phone service. Comparing rates to discover better deals can be time-consuming, although it can be worth it if it allows you to save more every month.
d. Save any bonus received
Have you gotten a nice raise or a hefty tax refund? Excellent! Please put it in your savings account right now.
It's simple to save money by using perks from checking accounts or credit cards or enrolling in loyalty programs offered by your favorite cafes and stores. You can earn cashback rewards on shopping by using your debit or credit card, and you may double-dip with customer loyalty benefits. It's almost like you're getting a discount on whatever you buy. Remember to stick to your budget so you don't feel tempted to splurge to earn extra incentives, as this could negate your savings efforts.
After all, it's money you've never really had in your wallet. So, by depositing it immediately into your savings account, you can simply pretend it never happened and go about your everyday budgeting and spending routine.
e. Use cash and stop overspending
While a credit card can be financially helpful, it may also contribute to the debt. Using credit cards without responsibility may incur debts and affect your finances. If you're concerned about restricting credit card spending as you learn how to save money quickly, consider going cash-only for a while.
f. Make your savings difficult to access
When it comes to money, most individuals lack self-control as well. Nearly half of all money savers frequently acknowledged using their savings accounts for additional purposes. So why not eliminate the temptation by making it more difficult to access your savings?
You can achieve this in a few different ways:
#Open a high-interest account
Unlike a regular transaction account, a high-interest online savings account is created to assist you in saving money rather than spending it.
Moving to a high-interest savings account that earns you higher interest is arguably one of the simplest ways to save more money for you. You might be losing a lot of money if your funds are languishing in a low-interest regular transaction account containing banking and transaction fees.
In most cases, interest is compound interest, which is calculated daily and paid monthly on your sum.
Remember that many high-interest savings accounts give bonus promotional rates for only a few months before decreasing to the ordinary variable interest rate, which is usually significantly lower.
You may constantly change accounts after the promotional period expires to make sure you're continually getting the best interest rate. Still, you'll usually only get the additional introductory interest on your first account with that bank.
#Save into term deposits
The second choice is to put your money in a term deposit.
Unlike a savings account, a term deposit does not allow you to withdraw funds without paying the penalty. In some cases, you may be requested to submit up to 31 days' notice. This, of course, makes it an excellent choice if you can't stay away from your money. You'll also benefit from the security of a fixed interest rate and a guaranteed income on your deposit. If interest rates fall while your money is locked away, you won't be harmed, making it a low-risk option.
However, once you've submitted the main lump sum deposit while opening the term deposit, you won't be able to add to your savings in the future. Having several term deposits with different maturity dates can help you get around this.
g. Use apps and online tools to score savings
There are many applications and websites that really can offer cash back incentives when you buy, on top of loyalty reward schemes. You can utilize these sites and apps combined with your debit or credit card rewards and loyalty programs to boost your savings even more just by spending and shopping as usual.
Here are some of the most useful money-saving apps:
- Rakuten – Provides Cash Back, Deals, and Rewards on various products and services throughout the world. This app presently has 12 million customers in the United States who have received over $1 billion in Cash Back offers.
- Trim – Trim users' expenditures by tracking their costs, automating savings transfers into high-yield accounts, etc.
- Truebill – It is a money management app that allows users to take control of their finances. Truebill can assist you in bettering your financial situation by finding and canceling unused subscriptions, decreasing recurring costs, and collecting refunds for outages and fees.
- Acorns – Acorns Core, Acorns Later, and Acorns Spend are three unique account types dedicated to helping you save your “spare change” and turn it into a valuable investment for your future.
- Honey – It takes pride in performing all of the legwork for you whenever it comes to finding coupon codes. At over 10,000 stores, the app will instantly add the most fantastic promo codes to your buying cart.
- Coupons – This website provides free digital and printable coupons for many commonplace items. The app is free, as does making an account. You can decide to receive a mail about the coupons available in your area and set up notifications to be notified of new savings anytime your favorite retailers become available.
- Credit Karma – Since 2008, this website has offered free credit ratings to over 100 million people. With this program, consumers can get credit scores, monitoring, and reports for free. This enables consumers to understand their financial situation and make the best decision possible.
Author’s Bio: Lyle Solomon has extensive legal experience as well as in-depth knowledge and experience in consumer finance and writing. He has been a member of the California State Bar since 2003. He graduated from the University of the Pacific's McGeorge School of Law in Sacramento, California, in 1998, and currently works for the Oak View Law Group in California as a principle attorney.
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