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How To Save Money
You don't need to read it to believe it, but money obviously plays a crucial role in all of our lives, and being able to manage it wisely can make all the difference when trying to achieve our financial goals.
Learning this kind of skill is essential, whether you're trying to build up an emergency fund, pay off some debt, or just look for ways to save money to buy something.
Throughout the course of this article, we'll be going into some practical tips and strategies you can employ so you're able to increase your monthly savings and take control back of your financial life!
From the importance of creating and maintaining a budget to how to cut back on unnecessary expenses, we'll be going over all you need to know to increase the amount of money in your pocket.
So, continue reading if you're looking to start saving money and take your finances to the next level!
How To Save Money — Creating a Budget
First things first, we can't stress how important it is to develop some kind of budget plan to keep track of all your various spending habits and expenses. If you learn one thing from this article, let it be to take action and create a budget.
In general, saving money is a goal that most people have and like to talk about, but it's never as easy to achieve in reality. One of the more effective ways to actually stick to a financial goal is by budgeting, and in this section, we'll discuss why that's important, how to create your own budget and general tips for keeping to it.
Why Budgeting is Important
In a nutshell, budgeting is essential for anyone trying to track their spending and make smarter financial decisions.
When you've got some sort of plan that's tailored to your specific finances, you'll know exactly how much cash you have coming in and out of your bank account every month, making it a lot simpler to prioritise what you're spending your money on.
Aside from the more general reasons, budgeting apps also let you plan ahead for the future. Once you're actually tracking what you're spending, you can identify a few ways you can reduce various household expenses to boost your monthly savings amount.
Any extra cash that you find yourself having as a result of budgeting can then be put towards any other savings goals, like paying off your credit card debt or saving up for a down payment on your first house.
How to Create a Budget
It may sound slightly stressful to try and organise, but realistically a budget can be broken down into five easily manageable steps to get started. Let's take a closer step at each of these:
Calculate Your Income
As expected, the first step is simply to consolidate all your income from any of the different sources you might have. Whether it's from your job, various side hustles, or money you've got tied up in your investment portfolio, make sure you're making a note of the total amount of money you have to your name.
List Your Monthly Expenses
Naturally, the total amount you'll end up spending each can change depending on the month and whatever financial responsibilities you currently have, but it's still important to try and think of the expenses you're consistently making each month.
Try to think of certain bills, for example, such as your rent/mortgage, car insurance, utility bills, weekly grocery shopping, and money you spend on transportation. In addition, don't forget about all the extra entertainment costs, like streaming services, wasting money by shopping online, or any other kind of subscription service you may have.
Categorise Your Expenses
Once you're finished compiling a list of your total living expenses, it's time to divide each of these expenses into their own category, for the sake of organisation.
Make various categories for expenses that fall under housing, food, transportation, and entertainment as well.
Set Spending Limits for Each Category
This part will depend on your own financial circumstances, so there's no one size fits all option for how much your spending limits should be. It might be worth getting in touch with a financial advisor at this stage so you can set appropriate caps on how much you're able to spend on specific categories.
Track Your Spending
This involves things like updating your budgeting app every time you're spending money to make sure you're actually sticking to your budget. You can do this all in one go or every time you make a payment; just ensure you're aware of how much is going in and out each month.
Tips for Sticking to a Budget
Creating a budget is only half the battle. Sticking to it is the real challenge. Here are some tips to help you stay on track:
- Be realistic. Make sure your budget is realistic and allows for unexpected expenses.
- Use cash. Using cash instead of credit cards can help you avoid overspending.
- Find ways to save. Look for opportunities to cut back on your expenses, such as cutting back on eating out or finding a cheaper gym membership.
- Hold yourself accountable. Set goals and hold yourself accountable for sticking to your budget.
- Review and adjust. Monitor your budget regularly and make adjustments as needed to ensure you're staying on track.
How To Save Money — Reducing Expenses
It's perfectly fine to have a budget when you're creating a big savings pot, but as a general rule of thumb, the only way to do this effectively is by having fewer expenses.
In this next part of the article, we'll be taking a look at some surprising ways you can reduce your outgoings and the importance of short-term sacrifice for long-term gain.
Identifying Unnecessary Expenses
Have you ever really taken into consideration what your own spending habits look like?
When we're trying to reduce the amount of money spent on various goods and services, there's often no better way of identifying where it's going wrong than checking an old bank statement.
This can be a massive help when it comes to determining which of your expenses are actually essential and which ones you can do without. In addition, one of the best ways you can do this is by utilising a budgeting app or a specially designed spreadsheet to keep track of all your spending.
At the end of the month, take a look at your spending tracker and see if there's anything you might have been overspending on.
Another alternative option for spotting wasteful expenses is simply by asking yourself the question — “Do I really need this item/service?” For example, think about a subscription service to a sports network, is it worth paying an egregious amount every month for hundreds of channels when you only watch a handful of them? Do you need that gym membership if you rarely use it?
By asking yourself the more basic questions, it's a lot easier to start making more significant savings from all the expenses you've cut back on.
Tips for Reducing Expenses
Once you have identified unnecessary expenses, it's time to start reducing expenses.
Here are some tips to help you get started:
Cut Back on Subscriptions & Memberships
Take a look at all of the memberships and services you're subscribed to. If you use it frequently, then you can understandably hold onto the gym membership, but things like streaming services and magazines can go entirely if you're trying to be frugal.
When shopping for groceries, try to stick to a predetermined monthly budget and make a list of all the essentials you'll need before heading to the shops. This can be a big help when you're trying to avoid impulse purchases and save money.
In addition, when it comes to money saving techniques, buying supermarket own brands can also save you so much money compared to when you're buying the premium versions of basic ingredients.
Reduce Energy Costs
This step may not feel like it adds much substance to your bank balance, but basic things like turning off the lights when you step out of a room can be massive in saving on energy bills.
Furthermore, you could also switch to more energy-efficient light bulbs and make sure your central heating isn't being used excessively to save on costs.
Use Coupons & Discounts
You may have noticed this in the past, but try and always keep an eye out for various coupons and discounts when you're out shopping. Aside from just having a keen eye for a bargain, there's plenty of apps you can download that will help you find discounts or ways you can get a better deal on different types of goods and services.
Making Sacrifices for Long-Term Gain
Unfortunately, reducing expenses often means you'll have to make some tough sacrifices. Nobody likes to give up the little things that bring joy to their day, but if you're looking to save regularly, you can't be eating at fancy restaurants or buying new clothes all the time.
Making sacrifices can be difficult, but in times like this, it's essential to keep your long-term goals in mind. Ultimately, by putting yourself through some short-term hardship and eliminating frivolous expenses, you're able to achieve financial freedom a lot faster and have more money for the things that matter most importantly to you.
How To Save Money — Avoiding Debt
No doubt about it, debt can be a slippery slope. As such, it's vital to understand all the potential dangers that come with it — from outrageously high-interest rates to payments that feel never ending, debt spirals out of control and wreaks havoc on your finances quickly.
So, to avoid finding yourself in this kind of situation, this next section will be focusing on how you can prevent getting inundated with debt. But don't worry, if you're already a bit too late, we'll also be going over how you can pay your debt off strategically.
Understanding the Dangers of Debt
Debt rears its head in many different forms — from credit card debt to student loans, cars, and mortgages, debt can feel inescapable at times. While some amount of debt isn't the end of the world, such as debt from mortgages or student loans, it's vital to know where to draw the line when taking on debt.
One of the more precarious dangers of debt is by far the high-interest rates. Depending on what credit card company or other lender you borrowed money from, interest rates can be an excess of 20%, making it much more difficult to pay off your loans promptly. In addition, the longer you're carrying a balance, the more you'll have to pay in interest, progressing the debt loop even further.
Furthermore, debt can significantly limit your financial freedom. When you're burdened with various forms of debt payments that you have to pay each month, there's a high chance you'll have to forgo many other essential expenses. This includes the simplest of things, such as money in your savings account, retirement planning, or travelling.
As mentioned, if you're having issues with making debt payments, you may even find that you need to resort to taking out additional loans to cover them, entrenching yourself in a seemingly unbreakable cycle of debt.
Tips for Avoiding Debt
If you're looking for simple ways to avoid stacking up debt, it all starts with being proactive about your finances.
Let's take a look at a few more tips in detail:
Creating a Budget
We've already covered this in detail so we won't go into it too much, but creating a budget is an excellent tool if you're aiming to keep track of all your general expenses.
Build an Emergency Fund
These are similar to savings accounts in that you're setting money aside in preparation for something. However, emergency funds, as you might expect, are more focused on saving for unexpected expenses, like accidentally scratching your car.
When you build one of these funds, you'll have much less of an issue covering all the expenses, minimising your reliance on credit cards or other kinds of loans.
Use Credit Wisely
While credit cards certainly have their place in the world, don't forget how quickly they can become a trap.
When it comes to saving money, there's no harder way of doing so than when you're wrapped up in high-interest debt. As such, make sure you're only using your credit card for necessary expenses (or expenses that will boost your credit score), or even consider signing up for a direct debit card instead so you're less tempted to spend.
Paying Off Debt Strategically
So, we've covered a few of the ways you can avoid getting yourself into debt, but what advice can be given if you're already in debt?
In general, the best approach is a strategic one. Let's explore this further:
Pay More Than the Minimum Payment
This might sound obvious, but if you're able to pay more than the minimum amount required for payments each month, you'll be able to reduce the amount of interest you're paying over the long-term, meaning you can pay it off faster.
However, it's worth noting that this is something the banks are aware of and try to disincentivise to avoid early payment — after all, they want you to be in debt longer so you're paying more money to them.
Depending on the bank, you might face early repayment charges whenever you pay extra cash than required, so make sure you're aware of their individual terms before doing this.
Focus on High-Interest Debt First
If you're currently carrying multiple types of debt, make sure you're prioritising paying off the debt with the highest interest rate first. Naturally, you're going to want them all paid off as soon as possible, but you'll save the most money in interest over time by going for the big one's first.
Consider Debt Consolidation
Similarly, depending on how many different types of debt you're carrying, you might benefit from a debt consolidation loan. This kind of loan focuses on consolidating all of your existing debts into a single, lower interest loan.
This can be a massive help when trying to cut costs, as even lots of debt accounts with low interest rates can stack up after enough time. Instead, you'll find your debt is a lot easier to manage, and you'll reduce the overall amount you need to pay in interest.
Seek Help if Needed
If you've been struggling to pay off your debt, never be afraid to reach out to the appropriate services to seek help. There's a range of different resources when it comes to repaying debts to help you get back on your feet. For example, tools like debt management programs or credit counselling are excellent for pointing you in the right direction.
How Can I Stay Motivated to Save Money Over Time?
Naturally, people can begin to lose motivation in their journey to financial freedom when they’re not receiving the same instant gratification as buying a new product. In order to stay motivated try and set specific, achievable goals, making sure to track your progress along the way.
Celebrate small victories too, and ultimately remind yourself of the bigger picture.
Is it Better to Save Money in a Bank or Invest it in the Stock Market?
This depends entirely on your financial goals and risk tolerance. Saving money in a bank can provide stability and easy access to your funds, while investing in the stock market has the potential for higher returns over the long term but also carries more risk.
Whatever you do, just make sure you’re doing your research first and considering your personal finances before deciding where to put your money.
What are Some Ways to Save Money While Still Enjoying Leisure Activities?
Of course! Just because you’re having to cut costs, doesn’t mean you have to stay inside for the rest of your life. Try finding free or low-cost events and activities happening wherever you live, and use things like discount codes for films and entertainment.
Furthermore, it always helps to participate in group activities that allow you to split costs with your friends or family.
How Can I Incorporate Saving Money into My Daily Routine?
In essence, it all starts with the small changes, such as bringing your lunch to work instead of buying it, turning off lights and electronics when you’re no longer using them, and even things like using reusable containers instead of disposable ones.
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