If you’re like most Americans, you have that inner voice telling you that you should be saving more money. But you may feel frustrated that you just can’t seem to save any extra dollar no matter how hard you try.
Is that you? If so, you’re not alone. According to a study done on 7,000 Americans, GOBankingRates found that 69% of Americans have less than $1,000 in savings (see full study here).
The good news is that you’re about to learn what steps you need to take right now in order to start saving money, even if you feel stuck, confused, and hopeless. You’ll also learn a couple of mental hacks to motivate you to want to save money so that the process becomes more engaging and enjoyable. So let’s begin!
Ask Yourself: What Am I Saving For?
The very first thing you need to do is ask yourself “What am I saving for?” or to put it another way, “Why do I want to save X amount of dollars?” Knowing why gives you the motivation to find a solution.
A broad goal like saving “for a rainy day” or “for retirement” is okay, but something more specific like “to go on a vacation” or “to save up a downpayment to buy a house” is more specific and can be more motivating. The clearer you can picture what you’re saving for the more motivated you’ll be to get there as soon as possible.
You may feel overwhelmed with all the things you could save for, and that’s perfectly normal. Most people want more things than they could ever afford to get. Here’s the key…
Action Step: Decide what’s the most important and save for that first. Once you’re done saving for that goal, move to the next. If you think that all of your savings goals are equally important, then either seek professional advice to help you decide or simply pick one randomly to start with.
Wants vs Needs
Now that you’ve decided what you’re saving for, ask yourself if it’s a want or a need. This will help you prioritize your goals and it will also affect how you approach motivation.
Although wants vs. needs are very subjective, some common examples of need-based savings goals could include saving for:
- Large bills or expenses such as car insurance or homeowner’s insurance (if you pay those bills in one lump sum once or twice a year);
- Emergency fund so you don’t have to take out credit card debt when unexpected expenses arise;
- Down-payment for a house;
- Down-payment on a car.
And some examples of want-based savings goals could include saving for:
- Entertainment like movie tickets, concert tickets, etc;
- Vacation expenses (flight, hotel accommodations, etc);
- Luxury vehicle.
To get motivated to save for need-based goals, think briefly about how bad your life would be if you couldn’t afford what you need, and then focus long and hard on how smooth your life will be once you can afford what you need.
To become more inspired to save for want-based goals, think about how good you will feel after you’ve purchased that item or experience. The clearer you can picture it, the better. If you’re saving for a vacation, think about how warm and relaxing the sun will feel on your back. Or if you’re saving for a luxury vehicle, think about how proud you will feel when you’re driving through town on your new ride. That will also allow you to control your money more effectively.
Once you have clarified what you want to save for, you will start feeling more excited and motivated to save for it, it’s time to look at your budget to see how quickly you can meet your goal.
Look At Your Budget (Or Start A Budget)
If you don’t have a budget, put one together, even if it’s loose. The main goal of a budget is to have a general idea of how much of your income goes back out each month and how much you have left over after all your expenses.
Action Step: Once you have a budget, determine how much you could technically afford to save per pay period. For example, if you make $3,500/mo and all your expenses total $3,000 then you have $500 “extra” per month.
Action Step: see if there are any expenses you can reduce or eliminate so you can save more. If you’re really excited about what you’re saving for, you may be surprised how many sacrifices you’re willing to make to reach your goal sooner. If you’re having a trouble of thinking about what expenses you could cut, here are 107 money saving ideas to get your brainstorm started. A couple of examples include turning off your TV, carpool to save money on fuel, make your meals instead of going out to eat as often, and so on.
Once you’ve determined about how much money you have available to save, it’s time to make a plan and decide how much of your available money you want to allocate toward your savings goal.
Make A Plan
For the sake of example, let’s say you have $500 of “extra” money each month after all your expenses are paid. You need to decide how much of that $500 you want to save for your goal. You may determine that you’re only comfortable saving $300 so that you have an extra $200 as a buffer for unexpected expenses that come up.
Let’s say your goal is to save $3,000 for a 9-months vacation. At that rate, in 9 months you’d only have $2,700 of “extra” money saved up, so you need to find a way to get another $300 somehow.
That’s when it’s time to look at your monthly expenses and see where you can make adjustments. You’re looking for a way to save an extra $300 over the next 9 months, which would average around $35/mo.
How about turning off Netflix? That’s about $11/mo. How about making your own coffee at home instead of getting Starbucks? That could save you around $2 per cup so if you drink one cup per work day, that’s about $40/mo. Now you have plenty of extra money to save!
Action Step: Once you’ve decided on a plan, write it down or chart it out in a spreadsheet or financial planning app. Stick to your plan by reminding yourself how important your savings goal is to you.
If you’ve already made savings goals similar to this in the past, take some time to review how your plan worked out in the end. Did you find it hard to stay disciplined? Was it really easy? If you have a track record of not sticking to your plans, then get some help setting financial goals and then tell a friend or family member about your plans so they can help you stay accountable.
So there you have it! Saving money can be simpler than it seems when you know what steps to take first. In summary, start by asking yourself what you’d like to save for and determine why it’s important. Then determine if this is a need or just a want. Then look at your budget to determine how much money you can afford to save, and then make a savings plan and stick to it. Now go out and start saving – you can do it!