One of my favorite quote regarding on saving money is “A penny saved is a penny earned.” by Benjamin Franklin. It reminds me of how important it is to know how to save money.
Every one of us wants to save money. But the problem is we do not know how to start. Or we do not know how to do it properly.
What Is Saving
It is hard for you to do a particular task if in the first place you do not know what it is. You will definitely do not have an idea on how to do it.
When you do not understand the concept, you will surely fail. It holds true to anything, you need to know well first the basic idea of what you are going to do.
It goes the same in saving money. You will not be able to save money if in the first place you do not know what is the meaning of saving.
Saving, in its simplest form, is a reduction of expenditure. It is you being economical. As an example, when you are in the park and suddenly you feel thirsty. You saw a store selling a bottle of water in front of you but on your right side, there is a fountain drinking water. In which direction will you be heading?
At this instant, the choice that you are about to make will determine if you are being economical or not. If you really want to save money, then definitely you are going to take the free one.
Importance of Saving Money
Many of us neglected the importance of saving money. Let us remind ourself once again why it is important.
Fundamental Step Towards Becoming Wealthy
You cannot become rich unless you know how to save money. Even though you are earning a lot but if you do not know how to save that money, nothing will be left.
Another thing is, the money that you were able to save can be used for investing. You can put it a mutual fund or even start your own business. You cannot earn more money if you do not have money to invest in the first place. How can you grow a tree if you do not have the seed?
Financial Security
The money that you set aside for your emergency fund can be your safety net in times of emergency cases. You cannot tell exactly when an emergency situation will arise.
If one of your family members get sick and need to be admitted to the hospital, you can immediately pay the bills without resorting to loans.
Gives More Options
Saving money is also planning ahead. Your choices will not be limited since you have enough money. Money alone cannot solve every problem. But it can help you to have better odds of solving your problems.
If you want to take your family to a vacation, you can have the freedom to choose where you want to go. Since you already anticipated that you are going to have a summer vacation.
If your current job is making you sick and you really want to quit. You can do so since you can support yourself until you can find a new job. Or maybe, you just want to have a break for a while after working continuously for many years.
The more money you will able to save, the greater the feeling of being in control of your life. That will make you more happy and satisfied, right?
Being at Ease
When you know that you already set aside enough money for emergency situations, for your kids’ college education, or for your early retirement, it keeps your mind at peace. Your worries regarding on financial aspect of your life will become less. You can focus more on other problems in your life.
You won’t be lying in bed during night time staring on your ceiling thinking where are you going to get money for your rental payment next week.
Or, your son is now going to college. You already have set aside enough money to pay for his enrollment, apartment and for his allowance.
Money Will Work For You
Saving money and putting it in the right place, it can start working for you. Over time, as your money grows you can work less. Eventually, if you were able to invest rightly time will come that you can stop working already.
How will this happen?
Every time when you have an extra penny, you can save it and later on invest it in the stock market or mutual funds. Especially if you have high income and low expenses, it will be faster. The earlier you can start also, the better. Since this kind of investment is base on compound interest – an interest will also have an interest.
As long as you continue saving, your financial problems should become less. You are preparing for the future.
However, if you are still not convinced about how important it is to save money. Let me convince you more here.
Despite the fact that saving money is crucial in order to achieve financial freedom, many people are still not saving. They always say that they want to be rich. But how can they become one if they are not saving money?
Are you one of them?
Why You Do Not Have A Savings
Forget to Save Money
Do you think it is a lame excuse? Indeed, you are right. If you really want to save money, do it intentionally. If you need to be reminded, put it on your mobile phone or place a note in your refrigerator. Saving money is not a natural habit, it will not occur naturally. Be intentional about it!
Not Paying Yourself First
What does it mean? It means you have to SAVE MONEY FIRST BEFORE ANYTHING ELSE. Set aside a portion of your income first intended for saving. I am going to discuss this later.
Spending More, Earning Less
This is a sure way of not saving money. Not just that, a clear path to be in debt. You are spending more than what you earn. If you cannot afford it now, do not buy it. Do not be tempted to use your credit card.
Do Not Know The Difference Between Wants and Needs
Knowing the difference between the two is a must. It helps you to eliminate unnecessary expenses thus increases your savings.
Needs refer to all things that are essential for your survival. It includes all your basic needs like foods, shelter, and clothes. On the other hand, wants refers to the things that you can live without. These are basically for luxury purposes.
However, there are instances wherein sometimes a “wants” seems to be a “needs” . An example is a cake. It is food but you can survive without always including it in your diet. Another is a soft drink, you can settle for water or juice. Anything that is an upgrade of your needs can fall into wants.
But there are things also that you might think that are not necessarily a needs. Things that are not directly needed for you to survive. Like an internet connection. If you are working at home or you have an online business, of course, it requires an internet connection. Then it can fall into needs.
You should be careful in determining what are your needs and your wants. And from it, and as much as possible limit those wants.
Confusion Between Assets and Liabilities
This is somehow similar to needs and wants. You should be careful with this one too.
In their simplest distinction, assets are those things that produce money while liabilities refers to any things that do not increases or generate an income.
Still unclear? How about this?
Is buying a brand new car or a bigger house is an asset or a liability?
The answer would be it depends.
It becomes an asset if you utilize your brand new car to earn money. For example, you want it to be a car-for-rent. A bigger house can be an asset if you intended to look for people to rent your place. Otherwise, it is a liability. It only increases your monthly expenses through maintenance cost.
Lacking Financial Goals
If you do not know what are the reasons why you are saving then you will not be motivated to do so. It is like walking aimlessly. You should have a definite purpose. How much are you going to save? Why are you saving? For what reason or to whom? You should set financial goals in the right way.
Already excited to start saving money?
Here it is.
How To Save Money
To know how to save money does not require to be a college degree holder. Does not even require an age limit. The sooner you can start to save money, the better.
What does it require? Of course aside from job or other sources of income.
You must have dedication and self-discipline.
I believe these two are really important. If you are not dedicated on what you are doing, eventually you’re gonna quit. Also, if you do not have self-discipline you cannot consistently do it. In the end, you are gonna stop saving money.
Don’t lose track of your expenses
It is important that you always record your daily expenses. By this, at the end of the month, you will know how much you spent and where your hard-earned money went. Write it down in a paper, encode it in the spreadsheet of your computer, of for less hassle download a mobile application. Choose a way that you are comfortable with. What’s important is that you are recording your expenses.
From this, you can set up your monthly budget. It is recommended that you base it at least three months of your expenses.
At first, it will be challenging to do so. You will feel bored but as time goes by, it will eventually become your good habit. Think of it, it will only take a few minutes to record it all as long as you already have a format.
Pay Yourself First
Before you continue reading, I want you to answer this first.
Which of the two do you think is right?
a.) Income – Expenses = Savings
b.) Income – Savings = Expenses
Let discuss it one by one.
INCOME – EXPENSES = SAVINGS
If this is your answer, you are definitely not giving priority on saving. If you follow this formula, you cannot have a definite amount of savings per month. And the worst is, you have a greater chance of not saving at all. If you are not going to limit your expenses, definitely you cannot save money.
INCOME – SAVINGS = EXPENSES
This is the right way of saving money. You are giving enough attention to “saving money” of what it deserves. You are putting the first savings above expenses.
If you really want to save money, you must set aside first a portion of your income intended to it. The remaining money that you have is what you are going to budget for your monthly expenses.
Saving should be the first one to have a share in your income. You should pay yourself first.
Be Decisive
If you really want to save money, do it intentionally. Think about your future, the things that you want to have and to experience in life. Do not attempt to skip a month without saving money. Do not say that you are just going to double your savings next moth to compensate for this month. If you do this, there is a really high chance that you won’t be able to do so.
Purpose Of Saving Money
In order to be able to save money, you should set a goal. Remember that I mentioned above that lacking financial goal is one of the reasons why you do not have savings?
Your goal depends on what you want in life. It can be to buy a new car, to build an emergency fund, for your early retirement or for the business that you want.
Having a goal in mind, you can have a clear image of what you want and how you can achieve it. You will have a clear vision of how much you should save per month in order to achieve your goal within that time span. It keeps you focused on.
The goal keeps you motivated. Let say, you want to have your own house. Imagine what it feels to be able to have your dream house. Thinking that sooner or later, you can have it will keep you motivated to keep on saving.
Goals are there to remind you why you are doing what you are doing. And why you are putting that much effort.
At first, you will have a hard time on how to consistently save money. That’s why it is important that you need to develop it as a habit.
Save Automatically
You can set to automatically save a portion of your income to your savings account. This is the easiest and effective way of saving money and it is less hassle. You can contact your company HR representative or directly your banks’ customer hotline. Set a fixed amount that you want to be directly transferred to your other account.
In Summary
It really takes time and effort for you to be able to save money. And if you really want to save, be intentional about it since it is not a natural habit. You need to develop saving money as a habit. Currently, if you are having a hard time saving evaluate why. It is important that you will be able to determine the cause. By then, you can find a solution regarding that problem.
Just do it regularly. Time will come that you will not be at ease anymore if you can’t save money. And do not ever forget this formula, INCOME – SAVINGS = EXPENSES.
How about you? What are your practices in saving money? Comment it below, share it also to the others.