Marc Serafino
It helps to have a system for just about anything, savings included. Simply put, it’s great when you know what you’re doing, and so — we bring you such system here.
This 8-step process could not only help you increase your savings, but also to pay down your debts. And it doesn’t require a genius to do so, only a bit of discipline. Here’s what’s it all about…
1. Track your spending
Banks have invented credit cards so we could spend like it’s nobody’s business. Think about it — when you have the cash at hand, you are behaving differently as you are seeing how quickly it can disappear when you’re recklessly spending.
In contrast, you don’t have such feeling when your swiping the credit card, hence the money tends to more easily leave your account. Even worse, you/we end-up in debt.
So for a start, write down all your expenses. If you credit card company doesn’t automatically place them into categories (in a credit card statement), create these categories for yourself.
Some of the categories to include on your list are restaurants/dining out, transportation, grocery, entertainment, utilities, mortgage/rent and so on. You can also try some account aggregation website such as Mint or Personal Capital.
2. Do the math
Don’t worry, it’s nothing complicated…
Once you have tracked your spending for a few months or more, you should find monthly averages in every category. Write down those numbers as they will be your starting monthly budget for every expense category on the list.
The goal is to outdo yourself by spending less per category every consecutive month.
In some categories that won’t be feasible — i.e. utilities and rent/mortgage — but in others you should easily find room for savings. It shouldn’t be that hard to cut out on dining out, right?
3. Continue slashing your costs
Say you succeeded in the first month, what about the next one? The idea is to keep pushing the boundary down.
Don’t say it’s impossible, cause I’ve been there myself. And I managed not only to survive but to thrive. It’s really ridiculous where our money goes these days.
The important thing is not to get frustrated if some month you fail to reach the goal; just keep trying and eventually you will succeed.
4. Small victories matter
As noted above, you shouldn’t be demoralized if you fail to reach the goal on any one month — you should just keep trying. And when you succeed – celebrate, but DON’T go on a shopping spree!
By being focused on reducing spending in various categories, you have many opportunities for small wins. Even if you fail in one expense category, you can feel good that you spent less in the other.
Trust me that this good feeling can be contagious, and will push you forward.
5. Make savings an expense
Add it to your cost list but mark it with a different color. This is the only expense you’ll want to grow over time.
Also, see if you have enough money to automate the savings. This way, a part of your paycheck could automatically go to your — say — 401(k) or Roth IRA plan, without you even noticing it.
And of course, the more you save, the bigger chunk of your paycheck will you be able to put into savings.
6. Pay down debts
If you have some debt — and many of us do — a part of your savings should go towards that debt(s) repayment. Whether it’s a credit card debt or a student loan, your goal should be to repay it as soon as possible.
Experts suggest starting with the smallest debt and taking it from there. And this time round, I agree with them — I can attest that this particular approach worked for me.
7. Keep an eye on new expenses
No matter how savvy you become about saving, there will be those times when you will be forced to spend extra in some areas. That’s just life.
But, you have been saving, right? Now you don’t need to yet again swipe your credit card and can use the good ol’ cash, instead. Actually you can use the credit card as long as you’re not going to carry balance from one month to the other.
8. Anything extra goes to savings
Finally, you should discipline yourself to throw any extra income to your savings account. It can be tempting to go on a shopping spree or travel the world, and I guess that kinda makes sense. You do need/want to live life, but try being careful about it. After all, you don’t want to find yourself in an even bigger hole afterwards.
So take it easy, and try putting at least a part of any extra income towards your savings. You know it’s the right thing to do.
