Saving money each month is a critical part of personal finance. You want to save money for your rainy day fund or FU fund. Saving money is how you can begin to build wealth. Here are the basics of saving to help you build your FU Fund and to reach your financial goals.
Personal Finance 101: Basics Of Saving
Most Americans Spend More Than They Save
This may sound easy, but most Americans live paycheck-to-paycheck and don’t think they will ever be able to retire. It gets even more difficult during inflationary periods. Depending on who you listen to for your economic news, you could be hearing that we may be entering a mild recession or we are at the start of an inflationary depression which could result in a lost decade. The bottom line is that you will not survive in, even in the best of economic times, if your financial strategy doesn’t have the critical saving component.
What Is Saving?
Saving restricts your consumption to convert your energy and labor to better your situation. The act of saving is how you can start to build wealth which you can then direct to higher-yield investments.
By saving your money, you work to better your situation, which is your ultimate goal. Self-interest is natural, and saving naturally follows human self-interest.
Savings are the excess money that you have left over each month. Like a squirrel who stores nuts away for winter, humans are similar in that they naturally want to save money to build up their savings for a rainy day.
Basics Of Saving
You can start by knowing how much you spend on necessities each month. You can then figure out how much the income you spend on needs. You can decide if there is anything that you are spending money on that you could eliminate to save more money.
You can decide how much money you want to save each month. A typical budget will recommend between ten to twenty percent. If you’re going to live a more frugal or minimalist lifestyle, you could save more of your income.
Spend Or Save?
It is ultimately up to you if you want to spend or save your money. The more money you save, the quicker you will be able to achieve your financial goals. Saving is the first step towards reaching financial freedom.
Practical Steps To Start To Save
There are five basic steps to help you get started on beginning to save money:
Decide on a budget and stick to it. Overestimate the amount of money you expect to spend you first start to follow a budget. This is a strategy to help you to more likely end each month with additional funds. You can direct the excess capital into your savings account.
Pay yourself first. Once you know the amount you need to live each month, set aside a certain amount of funds. You can automatically set up your checking account to send money to your monthly savings account. You want to save between ten to twenty percent of your monthly paycheck. You will then see your savings accounts begin to grow over time. You will feel more financially secure when you see your savings account rise.
Save shrewdly. Choose the best savings method that matches your financial goals. Make sure to check which banks offer the highest rates for savings accounts.
Plan for the unknown. Build up a rainy day or FU Fund to cover a minimum of a year’s worth of expenses in case something you did not plan for happens. You may get fired from your job. You may resign from your position for some reason. A health issue could come up that may make you unable to work. Plan for the unexpected.
Set financial goals for yourself. Life goals are essential, and the same goes for financial goals. Set clear and measurable financial goals by using SMART goals. This strategy will help you know how much money you need to save and how long it takes to achieve your financial goals.
SMART Goals
Real-life goals that you want to reach are excellent motivators. Once you have built up your FU Fund and have enough to support yourself for at least one year, you can begin saving for the things you want to have or experience. You can have short-term goals, which are a year or less of what you want to buy with your savings. You can have financial long term goals for larger purchases and significant expenses. Here are some examples of how to use SMART goals to reach your financial goals.
Specific financial goal that inspires you. Set clear objective goals that will help you to save for it.
Example: Save enough money to buy my condo or house.
Measurable goals let you plan to meet the financial task. You can research to determine measurable numbers to know how much it will cost you. This will help you keep track of your budget as you achieve your financial goal.
Example: I want to buy a condo or a house at a maximum price of $200,000.
Attainable goals that will pay off. When you set goals, make sure they are realistic and achievable.
Example: I can save enough money each month to buy a condo or house in that price range in a few years.
Relevant goals that make sense. Set a plan that is worthwhile to you in the long term.
Example: I am OK living in an older-style house for which I can pay cash.
Time-related financial goals with a set deadline and a time frame will help you stay committed to achieving your financial plan.
Example: I can buy a house in five years if I save twenty percent of my monthly income.
Summary
Savings is the excess capital that you have from your labor. You want to save at least a year’s worth in your FU Fund. Saving money is the first step toward financial independence, and you can create a SMART goal to help you reach a specific financial plan.
