Saving money can bring many benefits, but it requires patience and proper planning. Having extra cash in your savings can come in handy when there is an emergency or when you want to fulfill your goals. Many experts recommend that a person should save at least 10% of his monthly income for a stress-free retirement.
While saving money sounds like a good idea, getting started with it becomes the most challenging part of the process. Hence, this guide will help you with the best ways to save money for your short-term and long-term goals. Let’s take a look.
1. Set a monthly budget
Setting a monthly budget helps you to keep track of your expenses. You must categorize your needs and set a budget for each category to see where your money is going. Once you have a monthly budget, you’ll have a complete overview of your monthly spending, which will stop you from overspending.
2. Cut down your biggest expenses
If you cannot save enough money that you’d like, cutting down on your most significant expenses can help you do the job right. Many people spend more on housing expenses, and hence if you are living on rent, consider shifting to a small house.
You can also cut out on your entertainment expenses by canceling subscriptions that you don’t use regularly. Lastly, it is recommended that you wait before you buy something new. You may realize that it is a nonessential purchase, and you can manage without it.
3. Automate your savings
When you live on a fixed income, it is recommended that you start automating your savings. You can do this by setting up automatic transfers between your spending account to your salary account. Every modern back supports this functionality, and hence in most cases, you can set this app with their apps in just a few clicks.
4. Set up an emergency fund
As the name suggests, you must create an emergency fund that can come in handy in an emergency. Emergencies can include hospital expenses, money for getting food, and much more. Recently, as the COVID-19 pandemic hit the world and people lost their jobs, many people used their emergency funds for survival.
5. Keep track of significant and recurring spends
Keeping track of your significant and recurring spending allows you to cut down on your unnecessary spends easily since it gives you an overview of where you are spending most of your money. Once you cut down on your non-essential expenses, you can start investing the same money, so it keeps growing.
6. Use the 50/30/20 rule for budgeting
The 50/30/20 rule may sound confusing but understanding it is simpler than you think. As per the 50/30/20 rule, it is recommended that you keep 50% of your salary for your basic needs like food, water, shelter, and clothing. You can keep the rest 30% of your income for the things that make you happy. This can include your vacations, movies, hobbies, etc. Lastly, the 20% of income that is remaining should be used for your financial goals like savings, credit card, or other debt payments, and more.
7. Recognize and manage lifestyle inflation
Many people start spending more money when they begin to earn more. When this happens, your earnings grow under this term known as lifestyle inflation. This can be harmful to your financial growth because you won’t have the power to accumulate money. Many people also apply for personal loans with a high-interest rate to show off their lavish lifestyle on social media.
8. Refinance your mortgage
Refinancing your mortgage refers to paying off your existing loan and replacing it with a new one. This can happen when a person wants to go for a lower interest rate or decrease the term of their mortgage. The less money you spend on a mortgage, the more you can move to your bank.
9. Stock market investing
The stock market gives the best returns in the longer run. Data from the past few years shows that all the blue-chip stocks have grown over 50% – 350% on an average giving insane returns to their investors. That being said, the stock market can be volatile in the short term, and hence it is essential to do your research before investing in a stock. Investing in cryptocurrency is also a lucrative option to consider.
10. Get a side hustle
If you cannot save money from your current income, start putting effort into a side hustle, depending on your skills. Try freelancing jobs or do something that fits in your schedule and pays you good enough money that you can put in your savings.
Starting your savings journey can be challenging, but it is important to remember that savings are important, especially when you want financial independence in the longer run. The people who save the right amount of money and make investments tend to retire early than those who don’t save anything.