They say a penny saved is a penny earned. It is not about how much you earn is about how much you save.
Most of us plan to start saving money when we reach certain milestones, like reaching a specific age, getting a raise or when the kids move out.
In reality, we only start saving money when we think we have developed healthy money habits. It is choosing between future needs and current wants.
Saving is not as complicated as it sounds. It is all about priorities.
Why is it difficult for Americans to save money?
We all know we need to save but most people do not know the importance and they do not save like they know they should. A report from the Federal Reserve found that about 40% of Americans surveyed would have a hard time covering $400 emergency due to their competing goals.
For some people the goal to save money is not much of a priority to delay the purchase of the “wants” like, that new smartphone, TV or a some leisure activities.
The secret to saving money
The cycle of living paycheck to paycheck can be stopped with a simple secret: make a zero-based budget before the month begins. It is all about knowing. It helps you create a plan to see where your money is going and how much you save each month.
What is Zero-Based Budget and How Does it work?
A zero based budget is when your income minus your expenditure equals to zero. It is like giving every dollar a name or a job to do before you save or spend it.
You can start with your most basic or important categories which are food, shelter and utilities, basic clothing and transportation.
Saving needs to be in line item along with these categories. After you have set aside funds for your basic needs and savings, fill in the rest of your budget with what is left. Planning it this way prevents you from running out of money before you even start saving.
Saving Money is not as difficult as it sounds
One of the hardest part of budgeting is finding time to actually sit and figure it out. It takes about only few minutes to set up your money plan and you can even track your transactions on the go. That way, all you have to do is make some minor adjustments for some of the “wants” and you are good to go.
Some of the Practical Ways to save Money
Here some ways to save money in a practical way.
- Get rid of the debts – One of the biggest obstacles to saving money is monthly debt payments, so get rid of it. Debt snowball method is the fastest way to pay off debts. It is when you pay off your debts in from smallest to largest. Once you have paid all your debts, you could finally use it to make progress toward your savings goals.
- Automate your savings – Set up your bank account to automatic transfer funds from your checking account to savings account every month.
- Spend extra or unexpected income wisely – Put the extra income to good use. It could be a work bonus, inheritance or tax refunds. Use the money to pay off debts, if you are debt free, use the money for emergency fund.
- Try a spending freeze – Saying no to anything that is nonessential is not easy. One of the ways to avoid that is making a list of what you need and of course sticking up to it.
Saving money should be at the top of your priorities. Zero-based budget is one of the ways to do it. This way you are choosing to put your future needs before your present wants.