In the more immediate term, savings provide a cushion in the event that you experience a financial emergency. Without comfortable savings, a trip to the hospital, a layoff or even car troubles could derail your financial stability and plunge you into debt.
1. Acknowledge Your Motivations and Set Goals
Before you set out on your mission to improve your future finances, take some time to think through exactly what you would like to accomplish and what is motivating you to make a change in your life.Think about where you’d like to be financially one year, five years and ten years from now. Writing down these aspirations on a piece of paper, on your phone or on your computer will help cement these goals in reality.
2. Assess Your Current Financial State
Next, start thinking more concretely about the actions you need to take in order to reach these goals. One of the first steps in planning for your future is to understand your current financial situation and spending habits.Comb through your credit card and account statements and examine where all of your hard earned cash is going each month. You might surprise yourself by how much you spend on coffee or Ubers each month. You’ll start to recognize the spending patterns eating away at your paycheck and preventing you from accumulating long term savings.
You should also account for all of the regular, unavoidable payments that you need to make on a regular basis. Calculate how much you owe for loan payments, rent, mortgages and insurance and see how much of your income needs to go towards these necessities.
Once you understand where all of your money is going, you can take a critical look at the spending habits that you need to change. You will also be better prepared to make a realistic monthly budget that you can actually stick to.
3. Identify Where You Can Cut Back
Once you understand your financial past, you can more easily recognize the areas where you can cut back. Maybe you can reduce the number of times you eat out each month. Or, you can make a more concerted effort to take public transportation instead of taking Ubers or Lyfts. Perhaps there are some monthly subscription services you could stand to live without. Only you understand the difference between what you want and what you need to stay healthy and happy. So, engage in some personal dialogue about what things you need and what you can live without.Take 24 hours before making a major purchase like a new computer or a pair of shoes. This time gives you the space to decide whether that item or service you are considering buying is something you will actually need or will help you in the long run.
4. Create a Budget and Stick With It
Budgeting is one of the most important ways to meaningfully boost your savings. A budget makes it possible to set goals and track your spending and is one of the best ways to actually set aside savings on a regular basis.There are several schools of thought when it comes to your budget. Some say you should adhere to the 50/30/20 rule, where 50 percent of your income goes towards your needs, 30 percent goes towards your wants and 20 percent is set aside for savings. Another popular budgeting rule is the 70/20/10 rule. Here, 70 percent of your income goes to bills and everyday spending, 20 percent goes for savings and 10 percent applies to debt repayment.
These are all just suggested frameworks, and ultimately you should personalize a plan that makes the most sense for you.
5. Make a Separate Account for Your Long-Term Savings
You will be less tempted to dip into your savings if you are keeping your savings and your disposable income in separate accounts. Taking the action of transferring money into your savings account each month can serve as a monthly reminder of what you are trying to accomplish and helps you compartmentalize the different ways you’re allocating your income.6. Set Up a Savings Account Specifically for Emergencies
By the same logic, it’s a good idea to create an account specifically designed as a safety net in case of emergencies. Peace of mind is one of the main reasons you may be motivated to start saving, and for good reason. Knowing that you can support yourself in the event that you lose your job or encounter an unexpected financial burden can improve your mental health and let you be more present in your daily life.7. Invest in Yourself by Taking Courses and Learning New Skills
Even when you are working on cutting back, be sure to differentiate between what is a frivolous desire and what is a worthwhile self-investment. Investing in yourself can be one of the best ways to improve your future financial outlook so be sure to keep that in mind when making important financial decisions.Operating on a budget should not stop you from expanding your skillset or improving your qualifications. Whether you are considering investing in your education, starting a business or even kickstarting a side hustle, an investment in yourself can improve your financial state and pay dividends in the future.
8. Start Saving for Retirement as Early as Possible
Most experts agree that you should aim to put 10-15 percent of your annual pretax income towards your retirement savings. If you follow these guidelines, you should be able to live a comfortable life after you’ve retired and might even be able to retire early. If you do not start taking your retirement savings seriously, you could end up working later in life, and spend your time working when you should be relaxing and enjoying your golden years. The earlier you start investing in your retirement savings the more your investment will grow by the time you are ready to retire, so getting started soon is the smartest way to save for retirement.When saving for retirement, there are many investment accounts that have amazing tax saving benefits, like 401ks, IRAs and Roth IRAs. Each account has different nuanced requirements and regulations so look into which option is best for you.
9. Get out of Debt
Interest payments on loans and debts are a painful way to part with your hard earned funds. Unfortunately the only way to end this troublesome cycle is to climb your way out of debt, one payment at a time. The sooner you pay your debts the quicker you can start allocating that portion of your budget for future savings. Therefore, you should make it a priority to pay off your loans and debts as soon as you can.10. Track Your Progress Over Time
Staying motivated is easier when you keep track of the progress you have already made. Once your savings start to grow and you begin seeing the results of your hard work, you will feel proud of what you have already accomplished, and will be more likely to keep up your healthy spending habits over the course of your life.Diligently saving money is the only way to guarantee you will improve your future financial state. It’s also a surefire way to gain financial independence and freedom. Of course getting started is the most challenging step. However, if you take it day by day, you’ll start reaping the benefits of your financial discipline. Then you’ll see tangible results in the form of dollar signs in your savings account.
