Becoming a better saver and making the most of your income is not as easy as some make it seem. Even with all the resolutions and planning, things don’t always work out the way you expect; your savings account is practically the same as it was last year, despite all your good intentions.
However, after a certain age, there’s no more room for “I can do this next year” promise. After 40, you can no longer afford to continue procrastinating on your savings. It’s time to take action! That being said, here’s what financial experts think you should do to boost your savings and turn your pigeon nest egg into an ostrich egg!
Determine how much you spend
First thing’s first. Before you start putting money aside, you need to see how much you are earning and how much you are spending. It’s the only way to know how much you can eventually save in the long-term.
“It takes 21 days to form a habit,” says Natasha Rachel Smith, personal finance expert at TopCashback.com. “In order for a habit to stick, you have to start somewhere. Build yourself up to a point where you are comfortable with budgeting so the habit sticks. Begin by jotting down your income and expenses and see how much money you have left over every month.” Speaking of spending, check out 13 Things You Shouldn’t Purchase During a Recession.
Money is time, not the other way around
An efficient way to trim down your expenses is to see them in terms of the minutes and hours of your life, instead of the dollars in your wallet. “Calculate every expense into the amount of time that you would need to work to earn that amount of money,” says Paul Koger, head trader and founder of Foxy Trades LLC.
“When I figured out that two Starbucks coffees per day cost 30 minutes of my work when I could just drink coffee for free at work, it was much easier to ditch that expensive habit.” Do you think coffee is among these 14 Things Everyone Pays Way Too Much For?
Save more than you think you can
If you’ve already decided on an amount you want to save on a monthly basis, chances are you can save more than that if you set your mind to it. “Figure out how much of your salary you could save up each month, add 20 percent and transfer it to a separate account as soon as you receive your salary,” says Koger. “This will help you to get by with the money that is left over and help to restrain you from needless spending.”
Set it aside and don’t touch it
It might take a lot of strength and determination to put some money aside and act as if it’s not there, but it will eventually pay off, trust me. “Have a specific amount of money that is set aside each month—this can be either a dollar amount or a percentage of your paycheck, for example, 20 percent,” says Robyn, creator of the personal finance blog A Dime Saved. “If you get paid in cash, immediately separate the savings portion and place it aside. Don’t go shopping before having the savings portion in a separate envelope that you won’t spend. Tell yourself that it is not your money. It belongs to your savings account—not to you.”
Adopt the 50/20/30 rule
If your spending evaluation resulted in you spending way more than you can actually afford, it’s time to take action in the right direction. Enter the 50/20/30 budgeting rule. “When you are new to budgeting, consider adopting the 50/20/30 rule,” says Smith. “Spend only up to 50 percent of your after-tax income on essentials, such as housing; 20 percent on financial priorities, such as debt repayments and savings; and 30 percent on lifestyle choices, such as vacations.”
Obviously, you should pay for the more important things first, like utilities, cable, groceries and then think about leisure activities and entertainment. “By following this rule, you will be able to better manage your finances,” adds Smith.
Turn saving into something fun
Instead of seeing saving as a punishment, something that prevents you from living your life to the fullest, consider it a challenging but fun task that will only bring you benefits.
“Start to view mundane tasks, like saving, as a challenge to keep yourself motivated,” says Smith. “When you create a challenge for yourself, you naturally want to fulfill the responsibility to prove you can succeed. Review how much you spent on fees and interest payments alone in 2017 to help you view the bigger picture, budget and challenge yourself to save that much for next year.”
Discover the triggers
There are certain days when we are forced to spend more than usual, either on a higher bill, an expensive birthday presents or an unexpected car repair. Other than those days, your expenses should be more or less within the same range. This makes it all the easier for you to discover what triggers you to spend more when you normally shouldn’t.
“It is important to identify your spending triggers and to avoid situations that will prompt you to swipe your credit card,” says Smith. “Common spending triggers include stress, having a bad day, social pressure, credit cards, boredom or social media pressure.”
Try micro saving
Saving can be difficult, especially when you don’t have a large income that allows you to do other things than paying bills. But you don’t have to save huge amounts. Slowly, but surely, you can increase your savings just by putting aside smaller amounts. It’s something called micro saving.
“Micro saving is just what it sounds like,” explains Kevin Han, creator of the FinancialPanther.com personal finance blog. “It’s saving small amounts of money each day or week.” He suggests apps like Qapital, which calculates your daily transactions and save your spare change, “basically like a digital piggy bank.” By using an app like that you’ll manage to save substantial money without that many efforts on your part.
Consider dedicated savings apps
If you want to eliminate the pressure and hassle of calculating how much you have to allocate for your bills, leisure and savings, dedicated savings apps are a good alternative. According to Sacha Ferrandi, founder and head principal of Source Capital Funding, Inc., a saving app “helps you save money by automatically depositing the optimal amount of money into your saving account, based on your monthly spending habits.” To that end, she recommends the app Digit.
“When using your bank or payroll company to make this savings deposit, the amount deposited is generally based on a given percentage or a set dollar amount,” Ferrandi adds. “With Digit, its sophisticated algorithm monitors your monthly income and daily spending habits to determine how much money to pull and deposit into your savings account—allowing you to start saving with little to no additional effort or afterthought.”
Give in to your emotions
Money is strongly connected to emotions, but instead of letting this connection work against you, use it in your favor. Dave Ramsey, author of various books on finances and savings, including Financial Peace and More Than Enough, says getting a little angry at your excessive spending might prove successful in preventing you from overspending again.
“Get to a point where you’ve had it—no more struggling,” says Ramsey. “Whether that means working overtime, getting another job, or selling stuff, you have to get mad at your debt.” If you need inspiration in terms of side gigs, check out 9 Most In-Demand Jobs to Pursue in 2020.
Curb your online shopping habits
According to a recent study carried out by personal finance comparison website finder.com, 88.6 percent of Americans confess to making all sorts of online purchases, without actually needing most of the purchased items. More than that, people spend twice as much money on online shopping than they think they do.
According to Jennifer McDermott, the consumer advocate for finder.com, the best way to streamline your finances and manage to save some money is to give up online shopping. If you need more incentives, here are 7 Common Online Shopping Mistakes That Could Leave You Broke.
Look for better deals
You might think you’ve got yourself a good deal with your cable subscription or gym membership, but there’s always a better option out there. You just have to look for it properly and negotiate accordingly.
“Schedule a three- to six-month audit of all your providers to make sure you’re still getting the best deal for your circumstances. Don’t be afraid to ask your current provider to match or beat another offer. Many will go to great lengths to ensure they don’t lose your business,” recommends McDermott.
Look for freebies
Who doesn’t love a good freebie? Knowing that you’ve managed to get something valuable for free can brighten even the darkest day. It might seem a bit far-fetched, but it is a great feeling to do or receive something without having to pay for it.
“So many things that we mindlessly shell out money for can be replaced by freebies,” says McDermott. “Walk wherever possible, make your morning coffee from the supply in the office, attend networking events for free food as well as the business connections. Every time you are reaching for your wallet ask yourself: Is this something I should be paying for? If you make this a daily challenge, you’ll be amazed at how much you can save.”
Take automation to the next level
If you’ve listened to our advice and started using savings apps, it’s time to take your savings up a notch. “If you’ve got a savings account that offers automatic deposits, cranking up the rate at which money goes in can help you grow a holiday budget without even thinking about it,” suggests Kimmie Greene, consumer money expert at Mint.com. “When I need to save money in the short term, I tend to pump up my weekly contributions to my savings account. This helps me lock my money away until I’m sure I want to spend it.”
Seek out coupons and online deals
Couponing is a great way to save money on your purchases. All you need to do is seek them out as use them accordingly. Same with online deals. “Digging through your junk mail can be a good way to scoop up deals from local stores,” says Greene. “Local businesses will also offer discounts via local newspapers and magazines as well, so popping by a magazine rack can help you track down deals in your area.”
Look for overstock
Besides coupons and online deals, there are other ways you can trim your costs and boost your savings. Overstock is one such way. “Many crafters, artists, and other small creators who own Etsy stores or eBay accounts are also looking to make a bit of last-minute money to spend on their families,” says Greene. “Established creators often put their excess stock on sale in the weeks before the end of the year, and many artists take extra commissions to help them pay for their own celebrations.”
Maximize your 401k
If you want to take full advantage of your employer’s matching contributions, increasing your 401k contributions can make a huge difference in the long term. “The most effective way to save money is to make sure you are maximizing your contributions to your employer’s 401K plan if you are eligible to participate in one,” says Robert R. Johnson, president and CEO of the nonprofit, accredited American College of Financial Services. “Maximizing contributions that are tax-deductible is the most efficient way to accumulate wealth for retirement.”
“If you are offered a match and either don’t choose to participate or fail to make the contribution that will provide you with the maximum match, you are effectively turning down free money,” adds Johnson.
Verify your withholdings
Anyone can make mistakes, even the IRS. To make sure your W4 form contains accurate and valid information, it doesn’t hurt to verify it from time to time. “The IRS has a withholding calculator and can run estimates based on your income and current withholding to see if you may get a refund or have to pay taxes,” says Devin Pope, a certified financial planner with Albion Financial Group. “One may be able to increase their number of withholdings and receive more in their check each pay period. They can use the additional funds to build up savings.”
Speaking of taxes, here are 10 Surprising Things That Get Taxed By IRS.
Find free means of entertainment
You don’t have to pay big bucks to have fun. Sometimes, the best things come way cheaper than expected. Listen to the advice of Adrian Nazari, CEO of Credit Sesame, who says that “you can spend $10 at the supermarket and enjoy a mountaintop picnic.” He knows what he’s talking about.
“Many museums are free, and in summer you can often find cheap or free concerts and outdoor movie showings. Libraries and grad schools host poetry readings (sometimes with free wine and cheese). Going out for ice cream instead of dinner can easily save $50.”
Stop spending on certain things altogether
Identifying the areas where you need to slow down on your spending might prove more difficult than expected. To simplify matters, select just a few categories of expenditures you know you can live without, and stop spending on those all together for a period of time. Rip off the band-aid, so to speak.
“Skipping clothes shopping from April through June and September through November can keep you away from impulse buys during sales,” Nazari says. “The same idea applies to perennial purchases, like takeout: Say you order pizza once a week, like we often did. Replacing delivery with frozen pizzas from the supermarket for a month can save $10 per week. Hide the takeout menus four months out of the year and you’ve got an extra $160, without sacrificing convenience.”
To avoid turning saving into a dreadful chore, it’s good to offer yourself some treats from time to time. Kind of like rewards for achieving your savings goals for the month, let’s say.
“Saving for saving’s sake is just not fun,” says Patricia Stallworth, CEO of financial coaching firm PS Worth and the author of Minding Your Money. “But if you’re saving for an exotic vacation or something else you really want, it becomes easier to say ‘no’ to other stuff. Then once you build your saving muscle, you can begin to save for more mundane things like emergency funds and retirement.”
Visualize your reward
“The best way to do that is to keep a record of everything you spend—from bills you pay to snacks at work,” says Stallworth. “By tracking your spending, you can begin to see where your money is going and places where you might be wasting money that you could be saving. So, saving can become a better option than just wasting money.”
Just make it happen
Saving is not always as easy as financial experts make it seem. However, it’s not something impossible. One way to simplify it is to “divert 5 to 15 percent of your income to savings,” Stallworth suggests. “If you use a budget, add it in just like any other bill. If you don’t use a budget, just take it off the top. The pain will disappear over time and you will adjust your spending accordingly. Then, when you get a raise instead of increasing your lifestyle, increase your savings.”