Living within your means, and spending less money than you make is the most fundamental rule when it comes to saving money, yet in our modern credit-based society, the art of saving seems to be getting lost in the mix. Let’s get money wise and discuss the basics of the how and why of saving.
There are many different reasons why you should be saving your money and everyone will have their own personal reasons or goals that help motivate them to save. We have compiled some of our favorite reasons to save below and hopefully we can motivate you to save, save, save!
1.) Emergency Fund - expect the unexpected. This is one of the most important reasons to save. You never know when an unexpected cost such as health issues, car troubles will throw your bank account for a loop. No one likes to put money into an emergency fund, but EVERYONE will be thankful when disaster strikes and you’re ready!
2.) Live your dreams - While it doesn’t cost money for you to be a wonderful person, most of your material goals have a price tag. If you have been disciplined enough to put sufficient money away over a long enough time period you will probably be able to live the life style you want and accomplish things you could only dream of doing before.
3.) Freedom and Independence - Whatever your idea of freedom is, to get there, odds are you will need to have saved some money. Not having to rely on anything or anyone but yourself is a great and empowering feeling that can increase self-esteem and your quality of life. Knowing that you can take care of yourself under almost any circumstance gives you a true sense of independence.
4.) Fun - Some people say saving is no fun, but that’s what saving is all about! Saving those extra couple bucks that you would have spent on a coffee or a burger can be the difference between getting that new motorcycle and watching YouTube videos about motorcycles. Saving is fun because it allows us to achieve our goals and feel great about ourselves!
Now that we got the easy part out of the way, why don’t we get into techniques on how to save? Everyone has the ability to save for their future but unfortunately, not everyone has the discipline or the knowledge. The good thing is, saving is actually really easy! And you will thank yourself down the road. :)
1.) Pay yourself first - We have all heard this one before, yet how many people are actually doing it? This is the easiest and most effective way to save money. If you never give yourself a chance to spend the money, you probably won’t. Over time depositing a small percentage of your income will add up to massive savings and compounding that will allow your savings to grow! The best part about this method is you won’t even notice it. Once you decide to automatically pay yourself first, you will be astonished how fast your savings can grow.
2.) Avoid accumulating debt - This is another key to saving in today’s credit packed environment. It is so easy to rack up credit card debt but not so easy to pay it off. Learn to not use credit cards or when you have to use them, pay them off ASAP!
3.) Track your expenses and income - Once you have a good handle on tracking your expenses it makes is much easier to see how you are spending your money. Go ahead, I dare your to start tracking your expenses for a month. I guarantee that you will be amazed where your money is going.
4.) Create a budget - Once you figure out your expenses and income, it’s time to put a budget together. Assigning a set portion of money to all major expenses ahead of time can help ensure that you aren’t wasting money on things you don’t need, thus maximizing your savings.
5.) Set Goals - Now the fun part. You are paying yourself first, reducing debt, tracking all your spending and made a budget; it’s time to set some goals. You goals should always be SMART: Specific, Measureable, Achievable, Realistic and Time Framed. Goals are a very important part of saving because they give you reason and motivation to save.
6.) START NOW – We cannot express this enough: START SAVING NOW. The earlier you start the better chance you will have to achieve all your goals, and become financially independent. Relatively small amounts of cash left in interest-yielding accounts for long periods of time can eventually accumulate to several times their initial value. If you doubt this, consider the rule of 72 that estimates the number of years required to double an original investment. Divide 72 by the expected growth rate, say 9%. IE 72/9=8. It would take approximately 8 years to double your money. At this rate, if you started at age 20 and you wanted to retire by the time you were 60, your initial investment would have multiplied five times.
So this is great! You’ve followed our advice on saving and are starting to accumulate a nice chunk of change. Like I said, saving is easy, but what are you going to do with all this money?! Luckily for you, we know what to do with it. If you are interested in learning what we can do with your precious savings you’ve come to the right place! Give us a call or shoot us an email and we can figure out the best options for your personal situation. Happy Savings from the Tycuda Group!
MacDougall Investment Counsel Inc.