There are many reasons to save money. It’s not just because some wise philosopher said, “Take care of the pennies and the dollars will take care of themselves”. It’s also not just because your parents advised you to “save for a rainy day” although they are both right. Those lessons on how to put money aside each month will soon pay off.
Why Set Aside Money?
You’ve probably heard about a rainy day fund or an emergency fund. It is important to have money set aside for emergencies like losing your job, medical bills, or a huge car repair bill to protect yourself from potential financial ruin or unnecessary stress in difficult times.
Potential negative scenarios are not fun to think about, but they are necessary to plan for. Injuries, accidents, and illnesses occur. A savings fund should ideally cover your living expenses for a few months until you can get back on your feet.
In tough economic times, having savings allows you to “weather” financial unrest and unexpected challenges.
Retirement is another good reason for building a nest egg. You don’t want to find yourself at seventy, too old to work but too broke to be able to enjoy retirement. Seventy-eight percent of Americans reportedly aren’t ready for retirement. So how do you save money consistently so that you can be prepared for the future?
What Gets in the Way of Saving?
An old adage states, “If you fail to plan, then you plan to fail.” The number one impediment to saving is not creating a budget. With a budget, you’ll avoid over-spending and have money left to set aside for your savings.
The next problem is not sticking to your budget. When you aren’t maintaining your budget, you may find yourself taking from your savings account to meet emergencies or to pay monthly expenses. One of the major benefits of having a budget is consistently having money for the things you need, while also having enough to put away so that you don’t have to dip into savings.
Overspending on nonessential items is another problem we can all struggle with. While it’s hard to quit that outright, when you have a set budget, it can be easier to say no to spending on things you don’t need.
Let’s face it – sticking to a well-prepared budget is hard work. It takes the fun out of spontaneous purchases. However, disciplined saving brings peace of mind and long-term happiness, and it doesn’t mean you can’t occasionally treat yourself when your budget allows.
Budgeting Tips
People who often run out of money before the next paycheck may have an inaccurate or poorly thought-out budget or they may have no budget at all.
To ensure you stay within your means, create a careful and accurate list of all your expenses.
Start with the essentials and list those first. Your essential expenses, or fixed expenses, include things like rent, internet, car payments, and utilities. Set aside the total amount each month to cover these essential costs.
Next, take the remaining amount and divide it amongst your nonessential categories (entertainment, luxuries, vacation, etc.) Now you see where your funds are being allocated. Do not exceed it.
Do not overspend.
Those little luxuries like morning coffee, wine, or dining out can mount up. Paying for them in cash will help avoid overspending. When the cash reserve is gone, buying your luxuries are, too.
Create safeguards to keep you from dipping into your savings. Actions like cutting up your credit cards could help you avoid overspending. If you find yourself habitually overspending on nonessential purchases, consider asking your bank about safety measures to stop overspending. Some banks allow you to set limits on how much you can spend in a given time period.
Savings Tips
- Sort your savings into categories like Christmas gifts, retirement fund, kids’ education, family vacation, and entertainment. Every dollar you put into savings should have a label. This makes it harder to borrow from it.
- Set aside a specific emergency fund that is separate from savings and household expenses. When your fund has roughly three to six months to cover your essential expenses, then you don’t need to keep feeding it.
- Set a reasonable savings goal. Do the math. If you make $5,000 a month, and your living expenses are $3,000, you can’t possibly expect to set aside $2,500 in savings. It just isn’t there. Decide what is reasonable and make that your goal.
- Be consistent with your deposits into your savings. If you choose to put a certain amount into savings, make sure you continue to put that amount in. If you find yourself decreasing the amount you deposit into savings so that you can cover essential expenses, then it’s time to reconfigure your savings plan, but you shouldn’t decrease your deposits to cover nonessential purchases.
- Try using an app to keep track of your expenses. An app like Marygold & Co. helps support and track your goals and funding options all in one place. With Marygold & Co., you can create custom Money Pool Savings Accounts to differentiate your savings goals. These Money Pools help organize your finances all in one place while displaying your progress towards each prioritized goal.
No matter how long or short a time you have been earning, initiate and continue a savings plan. Your targets may change but there will always be reasons to save.
The Percentage Method of Saving
If setting a dollar amount savings goal doesn’t work for you, consider percentage saving. Instead of thinking of savings as dollar amounts, save a percentage of your net income each month by using the 50/30/20 rule.
Senator Elizabeth Warren reportedly referred to this method when she was teaching bankruptcy law and popularized it in her book. The rule is to divide up after-tax income then allocate the amount to spend by reserving 50% on needs like rent and food, 30% on wants like entertainment or luxuries, and 20% towards savings. Thus, you should aim to save 20% of your after-tax paycheck each month. You may have to adjust this percent, but use the 50/30/20 rule as a guideline.
(source: What is the 50/30/20 Rule Budget? | Paragon Bank)
The Easiest Ways to Ensure Savings
- Record every expense—no matter how large or small. Organize data into categories: gas, groceries, insurance, entertainment, and mortgage. Consider using a tracker app from your financial institution.
- Allocate 10 to 20 percent of your income into savings and investment accounts. Set clear prioritized goals with timeframes and target amounts.
- Look for ways to cut expenses and nonessential purchases.
- Find free or lower cost events in your community as alternative entertainment, to reduce entertainment spending.
- Cancel subscriptions and memberships if you are not making good use of them. This includes things like streaming services, gym memberships, and delivery services.
- Make an event of eating out, and make it a special treat. Eat and cook at home when you can. You will eat healthier and cheaper.
- If you think you need something, step back and think about it for a week. Your perspective on nonessential purchases may change. If you still want it (or even remember you want it) in a week, then you can consider the purchase more seriously.
- Think about fixing up rather than trading in or buying new. You don’t always need the latest phone, a new phone from a couple years back is still good, and cheaper. Many electronics and appliances can be bought refurbished.
- Set clear achievable goals. Give yourself confidence in your saving ability by setting a fun goal for you or your family. The achievement will reinforce your saving habit.
- Learn to set priorities with items for which you’re saving. For example, if your roof is going to need repairs, your car is getting old, or your washer is on its last leg, you know you need to start saving for those imminent costs. That means that saving for things like vacations can take a back seat.
With a mobile banking services app like Marygold & Co., you can arrange for an automatic deposit from each paycheck of a set amount into each “Money Pool” savings account you set up to give you direct control over how you reach each goal. A feature like this also takes the stress out of savings by doing it automatically, so that you don’t have to remember to do it each month.
Money Pool Savings Accounts
Money Pool savings accounts help you organize your finances, establish goals, and set priorities.
How does it work? Money Pools align with your short-term and long-term savings goals. This is an organized and easy way to create and follow individual savings goals. Establishing these individual goals gives you direct control over how you reach those goals. The Money Pools define the target and the timeline of each specific goal. You can instantly track your progress each time you log in and prioritize your financial goals.
The returns on your Money Pools coincide with when the money is required to meet those established goals.
Disclosures
This content is intended solely for providing information and should not be interpreted as financial, legal, or tax counsel. It is strongly advised that you seek guidance from your personal financial, legal, and tax consultants before participating in any financial transaction. Please be aware that the information, including hypothetical financial forecasts, might not account for taxes, fees, or other variables that could significantly influence potential results. This material is not to be regarded as an offer or suggestion to purchase or sell securities. While we believe that the information and sources are accurate, Marygold & Co. cannot assure the accuracy or comprehensiveness of the information and sources provided here, and we are not obligated to update this information. For further details about Marygold & Co., please visit our website.