Saving money is usually the first financial literacy lesson one learns as a child. As children, we never fully grasp how it can benefit us in the future. Growing up, we realize the value of money and how it can help one’s survival and success in the real world.
Being frugal can be a mental game. Everyday, we find ourselves in a dilemma of choosing between the happiness we get from shopping or the delayed gratification we obtain when we reach our financial goals. Usually it is the former because it is hard to think about financial goals when you’re in a spur of the moment situation. To avoid this challenge, you must plan ahead and see the value in saving money.
It is important for one to see the value in saving money. In fact, this is your first step into investing for yourself and for your future. The money that you save provides financial security, a fund for any type of emergency, future plans, and the convenience of early retirement. Saving also helps you build discipline and self-control.
There is no doubt that saving is important, but starting out is what can be tricky. Here you will learn how you can begin your successful financial plan through saving.
Having a SMART mindset when saving
The SMART method is perfect for all your short-term and long-term financial goals. SMART stands for Specific, Measurable, Achievable, Realistic, and Timely. The method aims to provide characteristics for your goals to ensure their efficacy and results. The SMART acronym originated from George T. Doran who wrote a paper entitled, “There’s a S.M.A.R.T. Way to Write Management’s Goals and Objectives.” The technique was made to help corporations reach their goals effectively and efficiently.
Say you want to save up for an item you have been eyeing for the past couple of months, or you want to create a life-long fund for emergencies. The SMART Method is perfect for situations like these as it will help assess how you can achieve your goal clearly and successfully.
- Specific: What is your goal? What will you use the money you saved up for? What is the specific amount of money you are aiming for?
- Measurable: How much do you want to save? How much should you save per week and per month? How long will you save for this?
- Actionable: Do you have the resources to do this? Do you earn enough to proceed with your goal?
- Relevant: Why do you need this? How will this better your life?
- Timebound: How long will this take you?
Answering these questions will help you see the value of saving and how it can improve your life. The method also gives you a mindset of one who is goal-oriented and disciplined. Knowing your why’s and how’s makes saving more of a personal project than a financial obligation.
Saving for beginners
One might find money management daunting because of the difficulty in allocating money. In Senator Elizabath Warren’s book “All Your Worth: The Ultimate Lifetime Money Plan,” she discusses the first step in saving: budgeting. It was through her 50-30-20 rule that helped people map out their financial plan.
The plan is simple: 50% of your money must go to your necessities such as food, housing, water, and electricity bills. 30% goes to your wants since there is absolutely nothing wrong with occasional indulgence in dining out or watching a movie with your family or friends. The 20% must go to your financial goals such as paying debts and creating a safety net for your future. To do this method, you can start by calculating the amount of money you can allocate for your needs, wants, and savings – this website can help you do this.
The rules may seem simple, but one may choose to prioritize savings over wants. The 50-30-20 is not a strict standard, it could still be adjustable depending on the person’s situation. You may choose to give the 20% to your leisure activities and 30% can pay off debt, for example.
The 50-30-20 rule is just a method for you to start your financial plan, specifically for those who do not have any plan at all. The rule may seem simple, but in reality it involves a lot of listing down of expenses and financial planning.
Saving for those in debt
We all have different circumstances. The 50-30-20 rule is perfect for someone who wants to start out a financial plan. However, this may not be the case for all. Kara Perez, found the 50-30-20 rule ineffective because of her student loans debt. She did not find the 30% rule for indulging practical because of her indebtedness. Fortunately, she found the debt avalanche method fit for her situation. The process entails you to pay your high-interest debts first, and then descend towards your low-interest debts. By doing this, you will be able to save the most money in interest and avoid the crash of interest rates. This method can help you address what’s holding you back from financial security. For Perez, she had to sacrifice a few of her splurges such as eating and drinking out, shopping for new clothes, and gift-giving. She also listed down her expenses to help her track her progress.
Another process that you may prefer is the debt snowball method, which makes you list down all your debts from lowest to highest. It is called the “snowball method” because it helps you focus on your lowest debt first and then like a snowball, as you start rolling you become bigger and more motivated as you progress towards your bigger debts. The process gives you different challenges as you advance such as setting aside more money or looking for more side hustles.
Saving for a shopaholic
“Shopping is my cardio,” “Off to retail therapy,” or “I shop therefore I am” are famous lines we often hear from shopaholics and in pop culture. In this pandemic, we can’t help but go online shopping to have a feel of the “outside world.” It’s no doubt that shopping is calming and a stress reliever for many of us. However, it can come to a point wherein we over-shop and forget to tend to our financial goals.
It is evident that shopping is a joy giver to many of us because of the thrill that it can give when purchasing a much wanted item. To avoid mindlessly buying items, make sure that before shopping, you plan ahead, and really ask yourself “Do I need this?”, “Can I afford this?” and “Is this the cheapest option available? Having these questions ready when planning will make you see the importance of saving. After doing the necessary steps, create a list of things that you need and stick with it, so that you don’t wander off to other shopping aisles.
With the rise of online sales, keep your notifications off for your online shopping apps. The pressure to buy when you see the word “SALE” is inescapable. In fact, Dr. Kit Yarrow states that clearance sales are psychologically irresistible as it triggers an individual’s fear of missing out and makes consumers’ immediately assume they get a “good deal” when buying. In this regard, you must deliberate if you would buy the discounted product at its original price. By this consideration, you will know if the item is a need or a want.
When buying, also choose the more sustainable option to reduce costs. In this way, you are able to reduce your carbon footprint and save money. Bring your own containers at restaurants and cafes, since it can reduce the price of your meals. Also buy products with a slow turnover rate so that you will not find the need to go shopping frequently.
Saving can seem like a hassle because of the many implications you have to remember and follow. However, it is important to remember that the changes you make provide you a better way of living in the future.