A common excuse I have heard as to why people save little or nothing at all is that the person does not have the available money to save or does not have it budgeted. While that reason is understandable when money is tight, automating the savings process can make the act of saving relatively pain-free. A central tenet of living a frugal life is the idea of paying yourself first before all other obligations. Think of saving as paying yourself first. By implementing six simple action steps you can be on the road to savings.
#1 – Decide How Much to Save
This decision is one that can be made during your budget preparation process. The mindset to have while making this is to pay yourself first. No matter the amount, you need to put saving for yourself ahead of all of your regular monthly obligations. Many experts say that you should be putting 10% of your take-home pay into savings, like an Aldermore fixed rate ISA for example. This may seem impossible at first, but don’t get discouraged. Take a look at your obligations and determine what you can reasonably put away without having to sacrifice too much.
#2 – Decide When to Save
Now that you’ve made your decision on how much you want to save, it’s time to determine the frequency. A simple rule to follow is to look at how often you get paid and have funds diverted into your savings account at the same frequency. So, if you get paid bi-weekly, you’ll be putting money aside into your savings account every other week, such as on the 1st and 15th of each month.
#3 – Contact Your Bank
Many banks will allow you to set up a regularly recurring transfer of funds from your main account over to a savings account. By setting this up it will automatically transfer the funds over and make it painless for you. Make sure that they do not charge a fee to offer this service and also inquire if they offer any savings accounts that give rewards for reaching certain levels of savings. If they do offer a program that offers rewards for different savings levels check that out as one who’s living frugally loves getting free stuff. If your bank will not allow you to do this then speak with your employer and see if they allow a certain amount of each paycheck to be diverted into your savings account each pay period. Either of these ways works and by automating the savings process you can realize success in your savings goal.
#4 – Set a Savings Goal
If you currently don’t have a saving account, or are not consistently saving, then setting a goal is key. These funds will ideally be used as a spring board to your Emergency Fund, but we must start with a more realistic goal as the act of automating your savings can help you build momentum for bigger savings goals. With all of this in mind, come up with a realistic goal that you think will be easy to hit in not too long of a time. You can set a goal of $500 or $1,000 and work towards that. Either of these, in general, should be easy to hit without making the act of saving too burdensome.
#5 – Reward Yourself
Once you’ve hit your initial saving goal, reward yourself. Choose a small, frugal treat to give yourself a pat on the back for reaching your savings goal, such as a trip to your favorite ice cream shop or casual restaurant. While this may seem counterintuitive to reward yourself for saving, it can encourage you to move on to bigger things as you have taken this new mentality of savings and made it a habit.
#5 – Set a New Goal
Congratulations, you have reached your initial savings goal! Let this be an opportunity to challenge yourself and set a new goal for your savings. If you have saved $500, why not now go for $1,000? Again, the idea behind automating your savings is to provide yourself a framework for your Emergency Fund. With that in mind, set yourself a challenging, yet reachable goal that will help you to continue to develop your savings mindset.
Saving money can be tough, especially in a weak economy, if it is not something you are already doing. However, by automating your savings, the act is taken care of for you. Living a life of frugality is one of freedom, but also one of choices. By choosing to automate your savings you can set yourself up for success as this is a foundational step that can breed success in many other areas of your financial life.
What are some of the goals you have with saving?
Photo courtesy of: Marcelo Moura