Did you know that only forty percent of Americans have enough savings to cover a thousand-dollar emergency? That figure is shocking. That means that if they have an emergency medical bill to pay, or their vehicle needs an emergency repair, they do not have the money to pay for it. Are you in that position?
Saving money may not be a priority right now. You have bills to pay, groceries to buy, and a roof to keep over your head. However, you need to make it a priority so that you avoid the risk of facing the consequences of not being able to pay for something that is critical. The good news is that if you manage to avoid any emergency demands on your money, you have a nest egg for your old age. It’s a win-win situation.
People often have the wrong mentality about saving money. People are influenced by their emotions when they make consumer decisions. You need to start thinking with your head and not your heart.
Here are two ways to mentally change your spending habits:
Name your money
Don’t just think of the money in your paycheck as dollars and cents. Think of it in terms of housing money, groceries, entertainment,and savings money. If you refer to the money with the name it is designated for, it tricks your brain into understanding the value of it and what it should be used for.
Don’t think of money in relative terms
The problem with seeing money in relative terms is that we make bad decisions. An example is that you may find a product online for $40, and then from another website for twenty dollars. You’ll buy from the site where you save $20. You look for another product, it’s on sale for $1,000 dollars, but you see it on another site for $980. You again save $20. However, the savings you make are vastly different – you’ve saved 50% on the first purchase, but only 2% on the second. Our brains tell us that we saved $20 on each – but the real value of each $20 is different. This example is using high-value items, but you need to apply the same thinking to the lower cost purchases that you make.
Changing the way that you think about money is the first step to saving.
Now you need to address your spending. Do you know where you are leaking money? Not keeping abreast of your expenditure means that you are at risk of losing money that you could be saving.
Record your income and expenses
Take the challenge of keeping a spending journal for three months. Use a journal to document every dime, dollar, and cent that you spend every day. You can then input your expenditure into a spreadsheet on your computer. Use your bank account statement and credit card bills to fill out the spreadsheet, so you get a complete picture of your financial situation.
You’ll have columns for housing, groceries, utilities, travel expenses, clothing, leisure and a column for sundries. Sundries are those costs like dry cleaning, coffees, takeouts, etc. Some of the costs that you list are set each month, and some will be influenced by events that are beyond your control -birthdays, Christmas and weddings, for example.
You also need to log any income that you have.
Set a budget
Recording your spending over a three-month period will allow you to calculate your average spending so that the figures are not thrown out by expenses that are regular but not monthly. You can now assess the data that you have collected.
The first thing you need to check is whether your income covers your outgoings. If you are getting into more debt as each month passes, you have to take emergency action and fast.A more detailed examination of your expenditure will reveal to you where you can save money. Savings can be made on non-essential items, so set a budget that covers the essentials.
Make better financial decisions
Seeing your budget in black and white can kickstart some big changes in your lifestyle. It is highly likely that you are shocked about where you are spending your money. That’s good though; it will motivate you to stick to your saving plan! This is your opportunity to make wiser financial decisions.
- Are you spending too much on utility bills?
- Is your medical insurance the most cost efficient?
- Do you need that subscription for the gym that you don’t go to?
- Could you take the bus into the city rather than paying for fuel and parking?
Think about the choices you make when it comes to spending. If you tend to put purchases on your credit card, it can be wiser to take out a loan to cover the costs, especially if they are for an emergency. This means that you may have an opportunity to pay the debt back at a lower rate than the credit card offers. Here’s a helpful page about loans that have no credit check. You should also investigate whether it makes sense to consolidate any outstanding credit card bills and pay them off with a loan.
Automate your savings
With the greatest will in the world, it can be hard to delegate money for saving. Revert to the paragraph above about naming your money. Once you have the mindset that you are going to save X number of dollars a month, you need to set up a separate savings bank account to hold the money. You can then automatically set your main bank account to send the amount each month to your savings account automatically. Aim to send between ten and fifteen percent.
Saving money is critical; critical for your future but also for your present. You don’t know what the future holds, what challenges you will need to overcome and when you might need to rely on your nest egg to survive. By reframing how you think about money, assessing your spending habits and changing your lifestyle to suit your wallet, you will be able to save.