What a crazy idea, right? The foundation of a financial plan should always start with that. By not spending every last penny you earn (or worse, spending more than you earn and accumulating debt), you will begin to accumulate savings. This accumulated savings can then be used to achieve your other financial goals, such as college tuition, retirement, a new home, a vacation, etc. All these goals become achievable after making a dedicated commitment to saving.
Unfortunately, saving money isn’t nearly as easy as spending it. For many, even the thought of delayed gratification (essentially what saving is) is difficult. Furthermore, there are many questions that need to be answered. How much should I save? Where do I save? Am I saving enough?
These key questions are questions that will be asked by everyone, regardless of income levels. Generally speaking, it doesn’t matter if someone makes $50,000, $150,000, or $1,000,000. I’ve learned that we all spend based on our income. As income levels go up, we buy nicer houses and nicer cars. We eat out at more restaurants and take nicer vacations. We often make the choice to spend our money now, rather than saving it for the future.
To help answer some of these questions and give the idea of saving money the attention it deserves, I have assembled a recap of my savings-related articles currently posted on Finance & Flip Flops.
The 5 articles that can help make you a great saver are:
The quick answer is to save 10% or more of your total income. If that simply isn’t possible, save 50% of your raise each year. Meeting one or both of these targets doesn’t mean that all your problems will be solved, but it’s a great start.
Simply put, saving is what you do with money that you don’t want or can’t afford to lose. Money you’ve saved is short term, safe, accessible, and liquid.
Investing, on the other hand, is long term. You invest money in the hopes of earning a better rate of return than your safer, more guaranteed accounts (savings). However, with risk comes the potential for loss. With investment, it’s possible that you will get back less than what you had originally invested.
Budgeting is key, so track your expenses! By tracking your expenses, you can identify what, where, why, and how much you are spending.
Another method is to look at your pay stubs. How much money is coming in each month or year? On the other hand, how much money is going out?
Having money “on the side” for an emergency is a fundamental part of sound financial planning. Very few things are worse than facing a major expense without any money to pay for it.
The rough goal for your emergency fund should be between 3-6 months of normal expenses.
Awesome, if you have been doing a great job saving money, then YES, buy yourself something nice as a treat. However, make sure to read this first!
A good savings plan is critical to help you achieve your financial goals.
I hope this helps you get your saving strategy on track!