You may feel like the financial powers-that-be all tell you to save – and to save as much as possible. But why? Don’t you want to enjoy some of what you earn? You should! It’s okay to have some fun with your money. In fact, having some fun with what you earn can help you to be better at saving, just like a cheat day can help you to stick to your diet. They key is understanding how to save your money. Set up smart strategies that will grow your savings while leaving you with some spending money on the side.
Automate Your Savings
One of the easiest ways to start saving money is to pick a percentage of your earnings and start saving it. Ten percent is a good start. Thirty percent is better. What can you realistically afford? Try to stretch, even if that’s just one or two percent to start. Something is always better than nothing. Once you land on a comfortable percentage, work with your human resources representative to set up automatic deposits into your savings account whenever you get paid.
Pay Windfalls Forward
Everyone loves tax refunds, bonus payments and raises. So what do you do with that money? First, buy yourself something nice. Just don’t forget to save. A good rule of thumb is to put a third of “found” money toward debt, a third toward savings and a third toward getting yourself something really cool like increased contributions to your splurge account or a lifestyle upgrade, like a better apartment.
What Are You Saving For?
Saving should have a purpose. It’s good to put your savings into three barrels:
- Short-Term Savings: This is your savings for emergencies and your first savings priority. Six months of living expenses should go in here.
- Long-Term Savings: That includes retirement funds, a housing down payment and investments.
- Splurge Savings: Do you want to buy a classic car? Take a trip around the world? This is saving for things you can’t afford right away. Even if you don’t technically need it, you can still work toward it wisely. Consider it your reward for being a savvy saver.
Prioritize Your Savings
Your emergency fund needs to come first. No one plans to be out of work, but it could happen. The best you can do is prepare with adequate funding. Once you’ve got that six months of living expenses socked away, start putting money into long-term savings and splurge savings.
Yes, You Can Save Too Much
Putting an unlimited supply of money into a savings account with no plan to spend isn’t using that money to its full potential. Inflation is going to eat it up. Better to invest or spend. After you’ve successfully saved six months of living expenses, have a plan for what to do next. Either invest it, put it into retirement savings or spend it on something big like a down payment on a house.
Once you’ve started saving, you’ll be surprised how easily it comes. And when you make your first big purchase, it will all be worth it.