You Can Save Like A Boss.
Do you find it hard to save money? Most of us aren’t born savers, but life is likely to make us wish we were. It would be nice to have a financial buffer when times get interesting. Fortunately, every one of us can become a saver. There are… call them habits, practices, or exercises we can capitalize on. You can save like a boss.
There are a couple of types of savers. (I’ll describe them shortly.) Whatever the type, for savers, saving is a priority. To protect against counterproductive calls on their money that do nothing but sap their financial strength, they have routines, tools, and goals that maintain and enhance their ability to save. Those same routines, tools, and goals will also help you start saving. You can go from having no savings to saving like a boss. Later in this post, I’ll include a suggestion that should allow you to adapt to saving as a lifestyle without too much resistance. It’s very simple. You can save like a boss. Everyone can.
Saving: Savers Just Do It. You Can Too!
Savers
First things first (and this is going to make me look like “Captain Obvious,” but hear me out), a saver is a person that saves money.
There are varying degrees of saving. Some people are occasional savers. They’ll add something to their savings account once in a while or occasionally have something they deem important enough (and expensive enough) to save for over time. Others save for everything. They live debt free: no credit card bills. The next time they buy a car, probably a well-maintained used car, they don’t want to make payments; they pay cash for it. I tend to emulate these people. They’re who I’m talking about when I say they save like a boss. The saving habits of most people, however, fall somewhere between the two extremes.
Regardless of where they are on the spectrum, the better savers are at avoiding certain attitudes and practices that hinder saving, the more successful they’re likely to be. I’ll discuss those shortly… Just as some attitudes and behaviors can be roadblocks to saving, there are others that make it easier. And, once we have money to save, there are decisions to be made—how to make your saving work for you. (When I get to that point, I’m very happy. It means I’ve circumvented those hindrances.)
Common Hindrances to Saving
- Having no budget/No budgeted savings
- Expecting too much from of our money
Of course, there are plenty of ways we waste money that could otherwise be saved. The two most common are neglect and abuse.
Many, many things call for us to spend our money. To control cash outflow, we need a spending/saving plan—a budget that includes funds for saving. We neglect one of the greatest benefits of having money in the first place if we don’t treat it as an asset with future potential.
Money is abused when we use it inappropriately. One significant way we do this is by utilizing credit too freely. In the end, we pay not only for the items we buy, but also for the privilege of using someone else’s money to make the purchases; it’s called interest. That devalues our own money. A form of abuse. Expecting our money to do more than it’s capable of without backup (savings) is another form of abuse. You jeopardize your funds if you overspend on clothing, housing, utilities, entertainment, or anything else.
It’s very easy to fall into the habit of neglecting and abusing our money. It comes from seeing money just as a means to live. In contrast, savers tend to see a future for every dollar. Mostly they want to have enough money to meet current and future needs and enjoy life. To that end, they tend to spend less in order to save more. They also have some tools or exercises that help them achieve their purpose.
Savings Enhancement Tools
- Budgeting
- Expenditure Tracking
- Cutting Expenses
Budgeting
Think of your financial security as a project (it is); you have plans and goals. Your budget is a To-Do List for the project. As with any project, some “to-dos” will be in effect from the beginning and remain for a very long time. Others will be replaced to accommodate your changing needs (and wants) as you make progress. Your budget should be designed to balance your income with your expenses; we all know both will change over time. Saving, in one or more forms, should always be included; you might think of it as an invoice you need to pay yourself. The more comprehensive your budget, the better you’ll be able to determine the state of your plan and your progress towards your goal.
I’ve written an article on how to make a budget and save money. It’s a step-by-step set of instructions that will help you put together a great budget. A budget is important for saving money and to financial success. Unfortunately, we might tend to ignore or even be unaware when we stray from the plan. Your budget will require something that makes you pay attention to what you’re doing with your money; that’s what a spending journal is for.
Tracking Expenses
Use a spending journal to track your expenses. A spending journal is essentially a list (what? where? when? and how much?) of expenditures compiled daily as you make them. Get in the habit of carrying a small notebook with you whenever you go out or have it handy if you shop online. At the end of the day, copy the entries into something more permanent and categorized so you can track your spending patterns, good and bad. If you don’t yet have a budget, the information it yields can help you put one together. If you do have a budget, a spending journal is a simple way to ensure you remain honest about your expenditures. It will also help you recognize spending patterns than could be tweaked to yield more money for savings. I have an article on spending journals that goes into detail about how to use one.
Cutting Expenses
If you’re searching for places to cut expenses, look at the following list. It comes with tips on how to pare down a number of expenses. After you’ve read through this list, I’m sure you’ll have your ideas on ways to save a little here and there. Added together over time, those small amounts can yield significant savings.
Shopping Lists: Make shopping lists for groceries and all other shopping trips. Stick to them. They can save you from buying things you don’t need (excess=money spent rather than money saved) and, alternatively, from forgetting something and wasting fuel (fuel=money spent) to make a second trip. I wrote an article on how to use a shopping list.
Recreation: We all want to have fun. Need to have fun is more like it, but I bet you’ve discovered it can be easy to spend too much on entertainment. Look for budget-friendly things to do. I wrote a list of 35 free or almost free things to do . Check it out.
Drink more water: The cost of soda, coffee, and other beverages adds up quickly—even if you buy them as part of your groceries. And Wow! If you buy them daily from a fast food place… I’m not saying stop drinking them altogether but cut back. And don’t just switch to bottled water. It’s pricey too. Maybe you don’t like the taste of tap water? You can get filter systems that improve the taste and smell. You can even find ads online for cups that filter water. Over time you’ll save money making your own “bottled water.”
Eat at home: Dining out is much more expensive than eating at home. You can save a lot of money if you cut back on eating out. And, if you get creative, you may find there’s an element of entertainment in preparing meals.
Take your lunch to work: When we go to work, it’s easy and quick to “pick something up for lunch at a drive-thru”. That convenience also makes it easy to spend a fortune. For a fraction of that cost, you can buy what you need to make decent lunches for the whole week and take it from home. (And, it doesn’t have to take a long time to put it together—ask any mom who sends her kid to school with a lunchbox.)
Get a roommate: Housing is expensive. If you’re able to find a good roommate, you can save a lot of money on both housing and utilities. (This idea may require some consideration before you act. I’ve written an article save money, get a roommate that can give you some insight on living with one.)
Stop paying interest on credit cards: If you use a credit card to make purchases, pay off any balance before the end of the billing cycle. This is especially effective if you have a cash-back or reward credit card; you can make some money. My article make money with your credit cards tells you what you need to know about this type of card.
Put your savings to work.
As you find ways to save more money, you’ll be faced with choices: What do you want your savings to do for you and what are you going to do to increase the likelihood of making it happen? The following two topics give you information that will help you make those decisions.
- Goals
- Purposeful Saving: Saving Accounts, Sinking Funds, Investments
Goals
There is no way I can know everything you need your money to do for you. Not only that, but as we live, our needs and wants change. Over time, at least some of our goals, some of the things we save for, will change. So, what I want to do is give you a few examples of things many people save for:
Emergencies: Setting money aside for the unexpected is very important. Having an emergency fund can be a (financial) life saver.
Quarterly/Semiannual Payments: Car Insurance is a good example.
Personal Deductibles/Out-of-Pocket Expenses: Think auto or medical insurance.
Auto Maintenance: As maintenance is often done on a schedule, a significant amount of work (oil changes, etc.) or part replacement can be anticipated and saved for. You can save for them and avoid sudden stress to your budget when time or event determines they need to be done. You can also save for inevitable, unanticipated events. (Who knew they’d have a punctured tire today?)
Birthdays/Holidays: These events occur regularly.
Vacations: Some people find it hard to balance the time/money equation for vacations. They may have time off coming but can’t afford to do anything special. Or they have money and no time. If you keep a savings fund dedicated to vacations, the money will be available when you are.
Retirement: We need to save for retirement. It’s difficult to live comfortably if we have to rely solely on Social Security.
Dreams: Some dreams may be fanciful; others are very practical. (Think storybook wedding, honeymoon, or higher education to advance your career.) Either way, dreams are usually costly and hard to realize if you don’t save for them.
Purposeful Saving
I hope that list of goals generates ideas about what you’d like your money to do for you and things you’ll be saving for. I’m sure you understand there is no way you can save for everything immediately. Figuring out your priorities is an interesting and exciting function of life.
It’s important to have goals for our money, to save towards upcoming events and things we anticipate needing and/or wanting (even some things we can’t necessarily assign a “need by” date). You want your money to finance your life; credit is costly.
As you determine savings goals, you’ll also want to think about where you’re going to put the money. There are a variety of avenues for saving. To a great extent, the difference between them is how much your money will earn (someone else will be paying you for the use of your money) and how easy it will be for you to have access to your funds. Here are the basic forms:
- Savings Accounts (Bank/Credit Union)
- Sinking Funds
- Short-Term Investments
- Long-Term Investments
- Trouble Shooting
Savings Accounts
When we think about savings accounts, most of us think about a bank, but they’re available from credit unions and even some investment companies (although investment companies may call them something different). Each has its own set of regulations for opening and maintaining an account. For example, as credit unions are nonprofits, they tend to pay slightly higher interest rates than banks, but they limit membership to some sort of community (e.g., occupation or residence, etc.). Banks might not pay interest if your account balance is below a certain dollar figure, and investment companies may require you to have an investment account and savings. Also, it tends to take a few days to receive even modest withdrawals from savings accounts with investment firms. In contrast, if your savings and checking accounts are with the same banking institution, transferring money from one to the other can usually be accomplished on the same day, quite possibly instantly.
Considering the above, savings accounts are great places to keep the money you may need quickly, like emergency funds and at least one round of insurance deductibles. They’re also a convenient place to collect and hold funds you’ll use fairly soon or often. Mortgage payments, oil changes, utility fees, for example. Bonus info: Some banks (and credit unions) offer interest-bearing checking accounts. That could minimize the need to transfer funds… Again, look at the criteria for earning interest. And BTW, your checking account is the place to keep funds for living between paydays.
Sinking Funds
Sinking funds aren’t a means for saving. They’re more of a bookkeeping tool, but they need to be included because they’re essential to understanding the state of your finances, which is, of course, based on available funds—savings.
You certainly don’t want to have (can’t manage is more like it) separate accounts for every individual savings goal. You can, however, hold funds in pools, savings, or investment accounts and keep a spreadsheet record of dollar amounts within the pools that are designated for each of those individual goals; those are sinking funds. If you’re wondering what should be considered for a sinking fund, think about everything. And keep in mind that should it be necessary to give a boost to a particular fund (perhaps an unexpected and expensive car repair?) it’s a simple paperwork drill to move your money around. If you have questions, read my article on sinking funds.
Short-Term Investments
When we talk about short-term investments, usually, we’re still talking about a place to store funds that earns interest, albeit at a higher rate than a regular savings account. (In contrast, we think of long-term investments as yielding dividends. I’ll address those in the next section.) Generally, short-term investments are scheduled for liquidation at the end of a predetermined period which may be several years but could be as short as a few months. Some common examples of short-term investments are government bonds, Treasury bills, and CDs. As with most investments, minimum monetary commitments must be met. But, the short duration of commitment to them makes this investment vehicle very convenient for certain goals such as the preplanned future purchase of a good used car or an engagement ring.
Long-Term Investments
Long-term investment accounts include assets like stock shares (often mutual funds) and bonds. Real estate may also be included. Timing is essential in both the purchase and sale of these assets. Any number of economic influences result in value fluctuations. It’s not unusual for these investments to be held for years (think five years, quite possibly more) to capitalize on market upturns. Over time, these investments tend to yield a higher return on the dollar than short-term investments.
Most retirement accounts are based on long-term investments. Another popular purpose is higher education; families establish college funds for their children, sometimes even before they’re born. Among other purposes are accumulating funds for a house, dream weddings…almost any big-ticket future goal.
As with any other investment, there are basic terms of purchase. Also, some accounts like the 401k incorporate penalties for early withdrawal. I find it advantageous to use a financial advisor when I make long-term investments; his understanding of the market is much more extensive and current than mine.
Trouble Shooting
If you’re not already a saver, it may seem a little challenging to consider what combination of the various saving channels is appropriate for your purposes. You might be even thinking, Where am I going to find the money to do any of that?
If that’s the case, you’ll be interested in the suggestion I promised at the beginning of this article: Become a 1 percenter.
Save 1% of your income, and you’ll be a saver: Hear me out. One percent of anything may not seem like much, but it could become a nice sum of money over a year.
In order to save even 1% of your pay, you’ll probably need to find ways to spend less. That’s a lifestyle habit for a saver. As for where to put the money you’re saving? A regular savings account is a good start. To reinforce the idea of leaving it in the account, you need a good “Why?”. I suggest using the money as a start on your emergency fund; as I said earlier, an emergency fund can be a (financial) lifesaver. Another thing you could do, since you cut back on expenses, is applied any extra money (I call it “found” money) towards paying off debt. As your debt decreases, you’ll have more money to save.
After you’ve become comfortable with saving 1% of your pay, move your saving bar to 2% and keep looking for more ways to spend less. Work at raising that bar periodically, but be realistic. You want to set yourself up for success, which usually takes some time.
When I talk about budgets and saving, there are some questions and comments that regularly come up:
Q I don’t make enough money to save any money.
A There’s always a way to save something. You may need to look harder.
Q I have no money left over after I pay my bills.
A Everybody has some indulgences, even if it’s just a cup of coffee or a soda. Get debt free instead.
Q Would you recommend getting a part-time job?
A Yes, as long as the additional money you earn goes to either debt repayment or savings.