Whether you’re buying a home, starting a family, paying off student loans, or a combination of those things, setting money aside for savings may seem tough. But it’s still important, and completely doable with the right strategies.
The two things you can do now to save more money:
- Pay down your debt
- Direct some of your income toward savings
Read on for specific tips as to how.
Pay Down Existing Debt, Including Student Loans
Paying down your debt is a great accomplishment and should be a priority, but it doesn’t have to take over your life – financial or otherwise.
Don’t Neglect Your Personal Needs While Paying Off Debt
Be careful not to pay down debt so aggressively that you hardly have any money left for daily expenses like meals and transportation. “Put together a plan to intelligently pay off the right amount at the right times,” said Jason Kirsch, 27, a financial planner in Chicago.
Consider Debt Consolidation
If you’re feeling overwhelmed, try calling the provider that services your student loan to ask about income-driven plans, such as consolidation. Consolidation involves wrapping debt into one payment, simplifying your finances and potentially getting better rates, according to Craig Nazzaro, an attorney with Baker Donelson in Atlanta and a member of the firm’s Consumer Finance Litigation and Compliance Group. Another bonus? It could free up a little fun money.
Don’t Overlook Planning for Fun in Your Budget
When people don’t plan to spend, they end up derailing their financial plans due to unexpected expenses like vacations and fun with friends. Start by deciding what makes you most happy and relaxed, then focus your spending on that.
Make time for fun activities so your life does not become all work and no play. Certified Financial Planner Christopher McLaren advises carving out a fun category in your budget to spice things up now and then.
“The amount to spend depends on [your] cash flow and how committed [you] are to [your] financial goals,” said McLaren, who is based in Cincinnati, Ohio.
Being conscious of your real priorities and not spending money on unrelated things is a great start to establishing your financial foundation. But whatever you do, don’t acquire new debt to have fun, rather make a commitment now to quit spending more than you earn even if it requires cutting up your credit card. It’s never too late to take the necessary steps to move toward the life you want and quit trying to keep up with your friends and neighbors.
Save Money While Paying Off Debt
Let’s be real. Paying off debt and saving money sounds a bit intimidating but it is possible.
First, assess your income and your expenses to create a new spending plan. This allows you to understand your cash flow – the money coming into and out of your accounts – and determine how much income you can apply toward debt repayment, savings and other important goals.
Split every dollar you save between paying off your debt and investing in your future. Even if that split is 80/20, you’ll accomplish savings in the long run.
Automatic Savings Enrollment is Key
Second, pursue automatic transfers into savings account(s) through your bank or employer. When the money is automatically withdrawn from either your paycheck or checking account, saving becomes easier.
Once it’s safely in a savings account, forget that money exists. Know that you are working on a plan without having to take any more action because it’s being automatically withdrawn.
Areas to Cut Overspending
Having trouble imagining how you’ll find the money to put into your savings?
Housing, transportation and food are consistently the three largest areas of spending for the average American. If you are struggling to establish an emergency fund or save for retirement, start by evaluating these areas to see what adjustments can be made.
Although drastic for some, lowering housing expenses can be as simple as relocating to a less expensive property at the end of your current lease if you’re renting.
“Aim to keep housing expenses around 25 percent of your take home pay,” said Sam Farrington, a certified financial planner in Omaha, Neb. Similarly, you can downsize to a less expensive vehicle to minimize or even eliminate a car payment.
While paying down your debt and putting some money toward savings will make your thank yourself later, remember that everybody needs a break. That break doesn’t have to be extravagant. Go out to eat every once in a while on a Friday night or take a mini-vacation over a long weekend. It will be time to get back in the saddle on Monday!