Secrets to saving money on a tight budget.
Having a tight budget is as common as having a cell phone bill. Most people have their budget written out and they live their lives according to their budget. Most people have a different way of handling their finances. They simply look at their bank account if they have money in it they usually spend it. This is not the way to manage a budget. You must be intentional about it. You do not live to budget; you budget to live.
Saving money must fall into a group of buckets. The buckets are:
1. Short term savings
2. Medium term savings
3. Long term savings
Lets start with short term savings. These savings are what we want to be liquid. Liquidity means how fast you can get your money when you need it. We call this the emergency fund. This is the fund you set aside, usually 3 to 6 months net income, for an emergency. Emergencies pop up all the time like your car battery died or you need to replace an appliance. If you have the cash on hand you do not need to put it on your credit card. Remember a good credit score is good but any amount of debt is bad. If you need to know more about credit see https://mindyourcents.com/my-credit-score/
Medium term savings are for a life changing move. When we say life changing, we are talking about a down payment on a house, a new apartment you want to rent or even a family getaway. Once your short-term savings is met (emergency fund) you can start saving money into this account. This account should not be as liquid as the emergency fund. We suggest an account like money market or T bills. The reason we don’t want it so liquid is to limit that access you have to the money on the short term. This will also yield interest which is money given to you by the financial institution for you giving them your money. A little interest is always good. As with every other savings account plan this according to your budget. A steady monthly stream of savings adds up quick. Make it a habit to put money into this account keeping your medium-term goal in mind. The goal will motivate you to cut your spending and save. Medium term savings are anywhere from 1 year to 10 depending on the medium-term goal you have.
Long term savings are usually called retirement savings. These should not be accessible until your retirement. Depending on your age is where your investment should fall. There are many vehicles to use to invest in we suggest a fulling funded Roth IRA. There is also traditional IRA as well. If your company offers any 401k or 403B options that is also a great place to invest for retirement, some company will even match up to a certain percent.
Another long-term savings is for your children’s college education. This is a great way to build an account, so your children do not have to take out such high student loans. Some of theses college savings accounts can grow if invested in the stock market at high percentages. These are called 529B plans. Have your account number accessible so when all your kids’ birthdays and holidays show up instead of overwhelming them with gifts family members can also put a few dollars in the account. Get with your financial advisor to set up one of these accounts. Remember a little extra money from time to time can have a big impact in the future.
Secret 1 Pay yourself first. Now that you know the basics of where to save your money what tips do we have to save money on your tight budget. There is the hide money under the mattress, that usually does not work. There is the “I will add a few dollars to my savings account” but that will not grow fast enough. Here is the first secret add paying yourself first to your budget. Well how does that work? When you create a budget, you know what is coming in and what’s going out on a daily, weekly or monthly schedule. Well, its time to add to that first line of budgeting a percentage of that money to pay yourself. There are many vehicles to put that money into let us just use a savings account for now.
Secret 2 have technology work for you. If you use the same debit card for all your purchases, did you ever think of adding that to a savings app. There are many apps out there that take the money you spent and round it up to the nearest dollar. If you spend $2.89 there is $.11 left over if you round it up to $3. That extra money is then put into a saving account. If you budget $100 for food shopping spend $89.50 the $.50 is put into this account and you have also shopped smart and save $10 total to your budget. So not only do you have extra left over from the shopping you have also put in $.50 to a saving account. Its like a double savings. If this happens over the course of a month you can see how fast you can build a savings account.
Secret 3 Use coupons or coupon codes. If you have a set amount of money for food shopping, you already know what your spending limit is. What if you can find a way to save a few extra dollars while you are shopping. We say shop smart. If you can reduce your food bill by $5 a week by finding a few coupons you will have money left over. $5 a week does not sound like much but over a 52-week year that is $260. It may not seem like much but if this is practiced over the whole month with every purchase imagine the savings. That surplus can then be saved in one of the savings buckets you have set up. When you are in the habit of saving money make it into a game. See how much money you can really save yourself over a month. The next month after the budget is created see if you can save more. The budget stays the same, but the savings account will increase in size if you play this game correctly.
Secret 4 is the most important secret of them all. Pay attention to your spending habits and finances. If you are conscious of where your money is going and what you are spending it on you will make better decisions financially. If you know you are spending $5 a coffee at a Starbucks when you can make it at home for less than a dollar that is a conscious decision. Want the numbers on that coffee. Look at this is based on getting 3 coffees outside of your home a week (156 coffees)
Starbucks coffee $5
Coffee made at home $1
Saving per coffee $4
156 coffees x $4 equals $624
See the huge amount of savings with just 1 decision. Multiply those decisions by every time you spend money. The savings are there you just must pay attention to your spending.
