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Having a strong savings account is more than just a point of pride. It means security. You'll be secure in your finances and more secure in yourself. Even more than owning things, saving money can bring you great happiness. There's a deep sense of happiness to obtain when your savings are high. Let's start building your account:
Identify Your Savings Goals
When deciding how much to save, it's important to first determine what you're saving for. Even if you're simply saving money to give you peace of mind (ie: an emergency fund), it's still important to set some goals. Let's say you want $10,000 to feel secure. That's your goal. Your goal will determine how much and how quickly you will need to save. Here's a possible list of things you may want to save for:
- Emergency fund (short-term goal)
- A wedding (short to medium-term goal)
- Down payment on a house (medium-term goal)
- Retirement (long-term goal)
- Saving for children's college education (potentially medium- or long-term goal)
Once you have determined your savings goal(s), it's time to make your budget! It's a lot easier and less boring than you think. Think of it this way... a budget is about thinking about how you want to use money to improve your life. Creating a better life is one of the most rewarding things we can do with our time. Let's get to it.
How Much to Save Depends On How Much You Make
Clearly, how much you can save is determined by how much you make. Someone who makes $100,000 should be able to save much more than someone who brings in $30,000. That's not to say the $30,000 a year person can't save, it just means they need to be more strategic and ruthless about it.
If you realize you need more money to reach your savings goals, read this post
we wrote about using your "other 8 hours" to generate more income. You'll be surprised how much you can make by hustling a little on the side! All that new found money can go towards your savings goal(s)! And new house, car, whatever is less out of reach than you may think.
Can You Sacrifice A Little?
Let's get real: do you really need that gym membership? Or can you get away with workout videos on YouTube or DVD's from the local library? How much money can you save by cutting cable or switching to a low cost phone carrier? Hint: A lot.
You can further reduce the amount of money you spend by looking at your food expenses. In stead of going out for lunch, simply bring your lunch to work. Instead of hitting the bars after work, host a happy hour at your place - just make sure it's a fun BYOB event.
While these life changes may seem like a sacrifice, you'll get used to the new norm. You may realize bringing your lunch to work is easier than driving to a restaurant during lunch traffic. You may realize you're more comfortable hosting an event than being a customer at a bar. Sometimes saving money doesn't really equate to many sacrifices.
Save Half of Your Income - Or More
It sounds crazy, I know. How is it even possible to save half your income or more? Between taxes, health care costs, plus actual living expenses... Depending on your income, savings discipline, and side hustling abilities, you'd be surprised how many people actually do save half their income.
While Will Lipovsky, from First Quarter Finance
, has extremely low transportation and living costs, he's currently saving over 50% of his income. He's saves 85%, actually. See, saving a large amount of your income is possible.
, who quit her job to start her own business, also saves 50% of her income along with her husband. She does this by prioritizing affordable and fun hobbies over material goods and wisely using credit card rewards to fund her travel wanderlust.
You may have heard of the incredible popular, Mr. Money Mustache. He and his wife saved over 50% of their income in order to retire at the age of 30. His story, profiled by Forbes
, is incredibly inspiring and informative. I encourage everyone to read it.
Savings Account Vehicles
Depending on your goal, you may need to consider different places to stash your savings. If you need your savings to be liquid, you won't want to put your savings into stocks. For example:
- Emergency fund:
- Since you need this fund to be easily accessible, keep this in a regular savings account, either at your local bank or an online bank.
- Retirement fund:
- Since this is likely a long-term goal, consider keeping your savings invested in the stock market. Yes, the stock market gets a bad rap but, over the long-term, you're likely to realize a significant increase in your initial investment.
If you're curious about online investment options, check out LaTisha's review of Betterment
. Betterment, and other online investment companies like it, is a very good option for retirement savings. Betterment offers easy investing options with low fees. While Betterment and other long-term investing options may not be the best option for short or medium-term goals, you might want to check out Betterment for your long-term goals.
It's up to You
I now pass the microphone to you. How do should you save. How do you plan on doing it? What will you do with the money once you have it? Comment below if you have questions. We're here to help.
And without further ado, let the savings begin!!!