Saving money is one of the most essential practices of adulthood.
But many people often struggle to get into the habit of saving.
They don’t know where and how to start building a savings fund or how to get into a savings mindset.
And this hurdle, right at the beginning, often delays their start to developing a more financially-secure future.
However, you may only need a point in the right direction to start your savings journey and potentially build a financial cushion or a fund to fulfill your dreams.
And in this article, we hope to give you that.
This article is a guide specially designed for beginners like you and aims to help you embark on this avenue called savings.
A Guide to Saving Money – How to Start Building Your Comfortable Nest Egg
Saving is a critical life skill. It helps minimize overspending and enables you to build a safety net to fall back on in crises.
Regardless of how difficult your financial situation may be or how bad your spending habits might be, it is never too late or too early to start saving.
It might seem impossible to save when you are living paycheck-to-paycheck, but there might be ways through which you may save some money on your existing income.
Nothing is ever too little to put into your savings account.
If you cannot dedicate a big chunk of your income to savings, putting aside as little as $50 each month would leave you with $1200 in savings in just two years.
Some money stored away in your account for emergencies provides peace of mind that your expenses will be met if you encounter a complicated situation.
Additionally, savings can help enable you to build a more sustainable lifestyle, where you learn to live within your means while saving for and enjoying the things you love.
Here are a few tips to help you build your savings fund:
Set a Goal
Saving is a mission.
Every mission has a goal and an action plan that tells you how you can get to that goal.
Before you can start working on your savings mission, you will need to identify your savings goals.
Ask yourself, why are you saving?
Do you want to get rid of your debt fast?
Do you want to go on a vacation next year?
Do you want to purchase your dream car? Or a house?
Or do you want to save simply for the sake of saving and to avoid overspending?
Once you take the time to ponder these questions, you may find out the reason behind your savings plans.
These reasons may give you direction and potentially reinforce your will to save.
With a goal in mind, you need to determine a dollar amount and a time frame to reach that goal.
For example, your goal is to save one month’s worth of living expenses in your emergency fund within six months.
Let’s say that amounts to $2000.
You have to save $2000 in six months.
For that, you will have to put around $340 into a savings account each month for six months straight.
That’s your action plan.
For people who are saving just for the sake of saving, building an action plan may not be this straightforward.
Some financial experts recommend putting aside about 20% of your income following the famous 50/30/20 rule. The 50/30/20 rule is basically a strategy of allocating your income into the following portions: 50% for needs, 30% for wants, and 20% for saving.
However, you don’t have to follow any hard and fast rules. All you need is discipline and dedication to continue to put aside as much as you comfortably can with consistency.
Record Your Expenses
If you find yourself in a situation where it seems impossible to save money from your income, it might be good to track your expenses. Because recording where your money goes may help uncover ways you might be overspending and potentially help you cut down.
Track all your expenses for at least a month, from the big ones like bills and gas to smaller ones like daily coffee or casual lunch with friends.
You might be surprised at how much you could be overspending or how easy it might be to get out of your paycheck-to-paycheck situation.
Once you have all your expenses in front of you, group them into categories. Put all the bills in one section, entertainment expenses, like eating out, trips, etc., in another, and travel expenses in the third. This is just an idea of how you might categorize your expenses, as common categories can vary from person to person.
Finally, total all individual categories’ expenses to see where your money goes and identify if there is anything you can do to reduce the amount spent in certain categories.
Cut Down On Your Expenses
Now that you have tracked your spending, you might be able to identify areas where you can potentially reduce expenses. To do this, you’ll just need to carefully analyze your expenses in each category.
Is the entertainment category carving a bigger dent in your income than it should? Or is the shopping section the reason for your tight living situation?
Identify the nonessential expenses from your record, like eating out, unnecessary shopping, or useless subscriptions, and clamp down on them.
Removing these expenses could potentially add up quickly.
Additionally, learn to differentiate between needs and wants, and try to avoid shopping online as online shopping has been found to be one of the biggest culprits in overspending.
88.6% of people buy things impulsively online [1].
Impulsive buying could be the death of your savings and may balloon up your expenses quicker than you can imagine.
Therefore, limit online shopping, or at least try to be a conscious and responsible shopper during these browsing sessions.
If you find something you really want, add it to your cart and walk away. Give yourself a day or two to think if you really need what you have added to your cart.
This might help you identify your needs from wants and potentially reduce the amount you spend on nonessential purchases.
Apart from avoiding impulse buying, consider eating at home.
The average price of a restaurant meal is almost five times higher than a home-cooked meal [2].
Therefore, regardless of how tedious it may seem, keep your eyes on your savings goal and try to eat at home as much as you can.
Prioritize Saving
The first step to effective saving is budgeting. And the next is prioritizing saving in that budget.
You need to dedicate a specific place for savings in your budget.
Treat the amount you have to save like you treat your bills and taxes. Something that absolutely must come out of your paycheck.
There are certain budgeting methods, like the pay yourself first method, that shape your budget around savings.
In this method, you allocate an amount to savings first and then budget for other expenses.
See if this would work for you, and then go for it.
Another step you can take to prioritize saving is to automate it.
Many banks allow the automatic transfer of a certain amount from your checking account to a savings fund.
In this way, money would go into your savings account, similar to how they go into a company-sponsored retirement account.
With a fixed amount going into a savings account without any human involvement, you might be able to get better at putting aside some amount regularly.
Plan Ahead for Big-Ticket Purchases
Everyone has to spend money on expensive things someday.
The best way to tackle these high-priced purchases is to plan ahead and time them according to seasons and sales.
Expensive household items like appliances and electronics etc., go on sale, usually at the same time each year.
For example, home appliances like fridges, dishwashers, etc., tend to be on sale during December and January. The same may be true for electronics [3].
Additionally, the price of items fluctuates significantly based on how much they are in demand.
Things like lawnmowers and BBQ grills tend to be cheaper in winters, while heaters and snow shovels might be cheaper in summers.
These things are often sold at bargain prices during seasonal sales or off-season. Therefore, timing your purchases might help you save a significant amount.
Get Rid of Debt but Don’t Abandon saving
Many people are often confused between paying off debt and savings.
What to prioritize?
A general rule-of-thumb, and logically the more reasonable approach is to make at least minimum payment on your debts while also contributing to your savings.
This way, you might be able to build a financial nest egg while reducing your debt.
However, if your financial situation is critical, and you absolutely have to choose between one or the other, consider talking to a financial professional to get tailored advice on your unique situation.
Final Word
People who haven’t saved a dime often struggle with where to start.
Saving might seem like an insurmountable hurdle at the start, but if you push through the difficult part and build a savings mindset, it may become easier.
There’s no better time to start saving than the present.
Start with whatever you have right now. And gradually build your way up.
Set goals, build an action plan, and identify where you can cut down to increase your savings.
And if you need help, consider talking to a financial professional.
At Dayton and Sydney, we offer tailored financial assistance and can help you with budgeting, financial planning, investment, and more. Talk to one of our financial professionals to get customized help today.
References
[1] “29 Impulse Buying Statistics To Give You All The Feels”, Soocial. March 6, 2022.
[2] “Cooking at Home vs. Eating Out. What’s Better?”, JourneyFoods, March 5, 2021.
[3] “A Bargain Shopper’s Comprehensive Guide to End-of-Season Sales”, Deborah Fowles, the balance, March 17, 2022.
