Have you gotten yourself in the habit of blindly swiping your credit card, hoping it doesn't decline? With inflation increasing, many people are starting to feel the pressure of living paycheck to paycheck.
As looming uncertainty lingers in today’s economy, it’s vital to begin building an emergency savings account to ensure you’re protected no matter what circumstances may arise. Start by saving $1,000 – this will help cover surprise costs (like a flat tire) or true emergencies (like needing stitches) so you don’t take another financial hit while you’re attempting to get your finances in better order. As of 2020, 36% of all American households would have difficulty paying a $400 emergency expense – use this guide so you're not one of them!
Once you have your cushion, focus on saving up three to six months of your living expenses. If you’re single, you might feel more comfortable with just three months. If you have kids, you might want to aim for the six month goal.
Release unnecessary stress (which wreaks havoc on the immune system!) by reclaiming control of your bank accounts and finding small ways to save that add up big! Here are nine ways to get started.
1. Create a Monthly Budget
It seems simple, but you’d be surprised at how many people don’t take this step. If you want to detect money leaks, it’s important to set a budget and stick to it each month. Allotting your money and visually tracking where you’re spending will empower you to be more diligent. We’ve all had those moments of going to Target for toothpaste and walking out with new home decor, a cute coffee mug, and three new outfits. When we don’t set limitations on our spending, it’s easy to dish out $5 here and $5 there…which adds up significantly when it’s all said and done.
When setting up your budget, plan for your consistent bills and savings, then for the categories that fluctuate like gas, groceries, gifts, and outings. The word “budget” can feel boring and restrictive, so be sure to add in some flair for fun. Just like how restrictive diets cause resistance and burnout that lead to binging, the same goes for your finances. Healthy cash flow comes from enjoying it while also being smart about it.
Another key tip when budgeting is to overestimate. For example, if you know you typically spend $500 each month on groceries, round it up to $550 or $600. This gives you a little room to breathe and helps to accrue additional savings.
2. Download a Budgeting App
To support your above goals, hold yourself accountable with a budgeting app. Always being in the know of where your money is going will help to reduce reckless spending. Apps are the best way to keep a pulse on your finances because they’re easily accessible. These free apps are worth checking out to get started. Once you have the app, remember to check it often so you always know exactly where you stand.
Allotting your money and visually tracking where you’re spending will empower you to be more diligent.
3. Carry Cash
After you’ve set your monthly budget, withdraw the categories you tend to overspend on in cash. For example, if you set a $300 outings budget but always tend to go over by a couple hundred, withdraw the $300 at the beginning of the month and keep it in an envelope. When the cash is gone, that means your spending for outings is done for the month.
Sometimes, swiping a credit card gives the feeling of “free money” – it’s the least painful method of paying for something after all. In a study published in The Journal of Consumer Research, Avni Shah and her colleagues demonstrated that paying in “cash is the most uncomfortable, followed by checks, which require us to write down the amount and remember it. Credit and debit cards hurt the least.” But the good news is that “the more pain we go through, the more we value what we buy.” So if you pay for your outing in cash, you’ll actually enjoy it more!
Another benefit to paying in cash is that because it’s tangible, you can see how limited it is, which helps you to prioritize and make better decisions about what you’re going to spend your money on.
4. Save 20% of Your Income
I once received the advice to “pay yourself first,” meaning when you receive your paycheck, automatically have 20% withdrawn and deposited into your savings account so you won’t be tempted to spend it. When you make saving your priority, it will quickly grow. If you don’t already have two separate accounts, it’s highly recommended. The “out of sight, out of mind” philosophy works wonders. When you deposit that 20%, pretend it doesn’t even exist. Your savings should be used for emergencies only.
5. Savings > Debt
While it’s a good idea to focus on both your savings growth and paying down debt, your savings should come first. Why? Because once you submit your debt payment, you can’t get it back if an unexpected circumstance were to come up. Saving will protect you from financial blunders. A reasonable goal is to have at least that initial $1,000 saved before chipping away at your debt.
6. Generate Extra Income
With remote work being on the rise right now, finding side hustles to generate extra income is becoming easier while not putting too much pressure on your already set schedule. Assess your skills. If you’re crafty, look into starting an Etsy shop. If you’re tech savvy, look into becoming a virtual assistant or social media manager. If you’re great at math, become an online tutor. Not to mention, there are other great opportunities with flexible schedules like Uber and Instacart that could also help bring in extra money on your own time.
7. Skip Starbucks
Again, this comes down to priorities. If your Starbucks stop is the highlight of your day and you can create a budget with it while still prioritizing your savings, then go for it! However, there are ways to still save here regardless. The average Venti drink can ring up close to $6. This amounts to $180 a month if you stop daily. Try to change up your routine and make coffee at home every other day, which will cut your spending in half (saving you $90). Or reduce your drink size and adjust your order to something a little less pricey. If you’re feeling ambitious, ditch the stop altogether. Remember, this is about what feels sustainable for you.
Paying with cash is the most painful method; paying with credit is the least painful.
8. Barter Your Bills
Sometimes we just stick with our monthly expenses because it’s routine and expected. However, most places are willing to work with you to save. Call your cable, utilities, and insurance companies to see if there are any packages that are cheaper than what you’re paying now but still suit your needs. Shop around at other companies to be sure you’re receiving the best fit for you and your budget. There are lots of competitive options out there, so don’t limit yourself to “that’s just the way it’s always been.”
9. Walk to Work
Is your place of employment local? While gas prices are continuing to soar, it could serve as a win-win to bike or walk to work if you’re able. Not only is it a healthy habit to support your overall wellbeing, but it will also save you quite a bit on fuel expenses that you can delegate to your savings.
There are so many small and creative ways to accrue more wealth, it just takes time and patience to start implementing them. Staying out of overwhelm will help you see more clearly where you can up your financial game. Remember, sustainability is the ultimate goal. Saving won’t do any good if you get fatigued and then resort to overspending. Inches really do make the mile in this case. Start small with some of the above steps and each month set a new, bigger goal that will move the needle forward. Every little bit counts!
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