No matter what your income is, saving is essential to your financial well-being. A person with a small income that saves and manages his or her money well is much better off than someone with a large income who spends every dime and lives above his or her means. In order to build long-term wealth and a strong financial foundation, you have to save. There are numerous ways to save, but it is best to start small and work your way up to bigger savings goals.
Set an Achievable Savings Milestone
Setting and achieving small personal financial goals and savings milestones will motivate you to work toward larger ones like saving for a home down payment or a new car. When starting your savings journey, you should first aim for at least $1,000 in savings. This will be the start of your emergency fund and will help you cover unexpected expenses without using credit cards.
Don’t feel like you have to save hundreds of dollars all at once. Consider starting with $25 a month, then save $50 the next month, and then $75, and so on. In one year, you’ll have saved nearly $2,000.
Pay Off Debt to Save More
Aggressively paying off credit cards, student loans, and other forms of debt is another great way to save. The faster you repay debt, the more money you save on interest and the more money you free up to add to savings—for necessities and for fun.
Paying your bills on time saves you money on late fees and improves your credit. A high credit score will qualify you for lower interest rates on future homes, cars, and business loans, saving you money in the end. Select a debt repayment method—avalanche or snowball—and set a goal completion date for repaying each debt.
Build Your Emergency Fund
Once you’ve paid off your debt, the next goal should be to increase your emergency savings. Ideally, your emergency savings should be able to cover three to six months of expenses should you become unemployed or suffer a loss of income. Saving this much money may take a while, but it is important that you don’t give up. Setting up automatic transfers from your checking account to your emergency savings account every time you are paid is a great way to stay accountable to your savings goal. Adding to your emergency fund whenever you receive work bonuses or a tax refund will help you reach your goal even quicker. Here are some best practices for building an emergency fund.
Just as paying off small amounts of debt creates a feeling of success and motivation to pay down larger debt, reaching small savings goals encourages you to go after bigger savings goals. Successfully saving six months of expenses makes saving for a home renovation or new car seem less overwhelming.
It is also possible to save for multiple things at once. You can contribute to your emergency and retirement funds all while saving for a vacation. You just have to be disciplined, know the monthly amount you plan to save for each goal, and budget for them. To keep things organized, open a different savings account for each goal.
Start your savings journey with an amount that you can easily commit to. As time progresses, challenge yourself to save more and more. Before you know it, saving will become effortless, and you’ll be on track for reaching your financial goals.