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We all know that we should be putting some money aside for a rainy day, or in order to save up for future goals, dreams, and any unexpected expenses that might rear their ugly heads.
All the same, that’s certainly easier said than done. And despite our best intentions we often find that the money we’ve “been putting aside” disappears as if by magic, on an all too regular basis.
There are many reasons why budgeting doesn’t always work out how we’d hope for it to. Sometimes, we simply don’t put the right kind of constraints on our budgets. And end up withdrawing the money we’d put aside whenever a cool looking jacket or gadget goes on sale. At other times, we are blindsided by unforeseen financial troubles, and end up taking the money we’d put aside for other purposes and spending it on getting ourselves out of that particular mess.
Nonetheless, saving up money is an important art, and it’s one that everyone needs to master sooner or later if they want to get the most out of their life. So, here are some tips for beginning to effectively save money today (or, soon at any rate).
Try out a zero-based budgeting system, and account for every penny
There are a whole array of different budgeting systems and methodologies out there. Some of these systems depend on putting a certain percentage of your monthly income aside for the sake of broad categories such as “long-term expenses,” “short-term expenses,” and so on.
Generally, however, these broad budgeting categories fall flat and fail to facilitate proper saving, precisely because they are not focused enough.
If you’re frequently filtering money off into a budget category simply titled “savings,” then you haven’t set any precise parameters for when it will be acceptable to spend that money and when not.
As a consequence of this, it’s pretty likely that you will find yourself in a situation sooner or later when the temptation grows to “give that money a job”, and spend it on something fun, something apparently useful, and so on.
In practice, this essentially makes focused saving – especially over the long term – difficult, and in some cases virtually impossible.
An excellent way of dealing with this particular problem is to adopt a highly precise zero-based budgeting system that accounts for every penny.
To put it simply, a zero-based budgeting system is a system in which you assign all the money that comes into your account each month to a particular “job” so that there is nothing left over.
For this to be maximally effective, your categories should be pretty precise. So, for example, you put some money aside for groceries, you put some aside for your electricity bill, you put some aside for your water bill, you put some aside for that jacket you want to buy, and so on.
YNAB (You Need A Budget) is perhaps the best known zero-based budgeting tool in the world today. Many people credit the system with giving them the clarity of insight necessary to avoid financial confusion, and to begin really saving in earnest.
Set up a specific savings account to keep your stored up finances in
You can save “on paper,” or “in practice.” “On paper” here means that you can leave all of your money in one central checking account. And simply keep a record of how much you intend to keep aside for a specific purpose.
This might be a fairly low effort and straightforward way of doing things, but it presents the constant temptation that you will look at your bank account, see that you’ve got a decent amount of money sitting there, and then feel compelled (or entitled) to spend it.
A good way of creating a clear psychological divide between your savings, and your “active” finances, would be to go the “in practice” route and create a new savings account. Then transfer any money that you dedicate to savings directly to that account. Then, if you ever dip into your savings, you will first have to transfer the money back to your checking account before spending it, and will likely feel suitably guilty for doing so.
There are many different types of savings accounts out there, including CD accounts. Here, for example, is a CD account calculator to help you get a handle on this particular category.
Having a dedicated savings account has more benefits than just the psychological, also. Most obviously, savings accounts will typically allow you to accrue interest on the money you’ve put aside, which will enhance your savings over time. Even if only little bit by little bit. And, like they say, every little helps.
Break the cycle of compulsive consumption, and consider each purchase for at least a week beforehand
A lot of people are essentially “addicted to spending,” and find that they fail to consistently and effectively put money aside and keep it set aside, because they are prone to going through cycles of “impulse buying” on a regular basis.
With all the cool things out there in the world today that can be bought, it’s not surprising that you would see an item from time to time and become highly excited by the prospect of owning it.
When it comes to protecting the integrity of your savings – and even just developing the right mindset to save – however, you really need to break the cycle of compulsive consumption and approach your spending in a more mindful, deliberate, and controlled manner.
In practice, a good way of doing this is to wait on each purchase for at least a week before committing to it. This will ensure that a bit of the initial excitement, and “spending momentum” wears off, so that you are able to approach the question of whether to buy the thing or not with a clearer head.
This will also mean that you have more time to reflect on whether or not you really need the item in question, or whether it can wait for a while. In many cases, this can be enough of a “defusing factor” to keep you on the straight and narrow.