Saving for when you retire or saving for now?
Saving money is one of the most important habits a person can form because it helps protect you in the event of a financial emergency. Additionally, saving money can help you pay for large purchases, avoid debt, reduce your financial stress, leave a financial legacy, and provide you with a greater sense of financial freedom.
To add to that, investing is also important, if not critical, to make your money work for you. You work hard for your money and your money should work hard for you. Investing is how you take charge of your financial security. It allows you to grow your wealth but also generate an additional income stream if needed ahead of retirement.
Both saving and investing are healthy habits as they allow you to have a plan B when unforeseen events take place that will cause financial distress. None more so than today’s pandemic and the measures being taken to tackle it which has resulted in millions of people all over the world not being able to work.
Businesses have closed temporarily, with many having closed forever. The knock-on effect of which is still to be realized. As far as most of us were concerned in our daily lives, a global pandemic that would close businesses globally was the furthest thing from our minds, but it happened.
Looking back on what we know now, ‘Hindsight’ is a wonderful thing, for many of us, we know there are things we could be doing differently to protect ourselves against a sudden loss of an income stream, or a major reduction in earnings. Events like the Coronavirus don’t happen every day, which is why they are that more devastating on the economy as we are not seasonally equipped to deal with them. We should however in the most part be seasonally equipped to manage our finances, right?
Unfortunately, that isn’t always the case. Why? One could argue that it’s because we are not taught these basics at school and learning the true value of money can take years and before we know it, we are in debt with credit cards, loans, mortgages and higher purchase agreements. One could also argue that we are bombarded from a young age with marketing campaigns that make us want for things we didn’t know we needed and grow up with it, so it becomes somewhat cultural to want new and shiny objects. A bit like the Magpies hoarding that we really and truly don’t need.
An IFA friend of mine once said to me ‘it’s not so much about how much you have coming in but it’s about how much you have going out’.
That has stuck with me for a long time and although it seems so obvious, I’ve seen a number of people say that they simply need to earn more money when in actual fact it transpired, they just needed to step back and review their spending habits.
It’s clear that the world in general could do with better financial education to learn about saving and investing. For people who are fortunate enough to have a good financial advisor, they will assist in helping to make those decisions and to help protect against unforeseen events. They will establish your savings goals and help to provide a route map with how to get there depending on your attitude toward investing and saving. Things to consider are whether you are simply looking to save for the future i.e. retirement or saving for your children’s education or whether you would also like to generate a second income in case the income you have suddenly stops or is compromised.
Whatever your goals, below are some helpful tips toward better money management:
1. Track your expenses: The first step to start saving money is to figure out how much you spend. Keep track of all your expenses
Once you have your data, organize the numbers by categories, such as gas, groceries and mortgage, and total each amount. Use your credit card and bank statements to make sure you’re accurate and don’t forget any. Before you can begin to start saving or investing, you need to have a clear understanding of where your money is going and what you have available to save or invest.
2. Budget for savings: Once you have an idea of what you spend in a month, you can begin to organize your recorded expenses into a workable budget. Your budget should outline how your expenses measure up to your income so you can plan your spending and limit overspending. Be sure to factor in expenses that occur regularly but not every month, such as car maintenance.
3. Find ways to cut your spending: If your expenses are so high that you can't save as much as you'd like, it might be time to cut back. Identify nonessentials that you can spend less on, such as entertainment and dining out. Look for ways to save on your fixed monthly expenses like streaming services, club memberships and so on.
4. Set savings goals: One of the best ways to save money is to set a goal. Start by thinking of what you might want to save for. Then figure out how much money you’ll need and how long it might take you to save it.
5. Decide on your priorities: After your expenses and income, your goals are likely to have the biggest impact on how you allocate your savings. Be sure to remember long-term goals it’s important that planning for retirement doesn’t take a back seat to shorter-term needs.
6. Pick the right tools: There are still millions of people all over the world who keep their money in their bank account. Building good habits using points 1 to 5 will free up capital meaning that the large amount of idle cash that will accrue in your bank account is no longer needed as a ‘just in case’ and can now be put to work. Prior to investing it’s wise to speak to a professional – Do your homework and ask for references as a sound advice goes a long way in helping you to achieve your financial goals.
7. Automate your savings: By automating your savings, you are no longer considering that which you are saving to be part of your disposable income. This builds consistency and is the more importantly is what you need to achieve the goals you have set.
8. Review: Review your budget and check your progress every month. Not only will this help you stick to your personal savings plan, but it also helps you identify and fix problems quickly. Understanding how to save money may even inspire you to find more ways to save and hit your goals faster.