Best Ways to Save Money

The COVID-19 pandemic has changed society in many ways. It has taken away our health, freedom to travel and socialize, and even our financial security.

In a study by Allianz Life last year, 58% of Americans believe that the pandemic has negatively affected their retirement plans, while 54% think that the market is yet to reach its lowest point. Moreover, 72% are finding ways to protect their savings because of the pandemic.

The global health crisis has indeed become a wake-up call on how we live our lives and how we manage our resources. People are losing their jobs, businesses are closing, and it’s high time for us to re-evaluate our lifestyle.

More than living in the moment, people are now more aware of preparing for life’s uncertainties. If you want to start preparing for the future, here are some ways to manage your finances.

Contents

1. Save at least 20% of your income
2. Open a separate savings account
3. Make a budget
4. Track how you spend using excel, etc.
5. Pay off your credit card and other high-interest loans
6. Limit dining outside
7. Avoid buying unnecessary things

What should you save money for?

● Build an emergency fund- 3-6 months of your salary.
● Insurance- invest in preventive healthcare.
● Save for your future or retirement.
● Save for investment.

If you are a beginner, here are seven ways to start saving and prepare for your future:

 

1. Save automatically 20% of your income per month

The 50/30/20 Rule tells you to consider at least 20% of your income should go towards savings. The more you save, the better. The less you save, the longer you need to do it.

Senator Elizabeth Warren popularized the 50/30/20 Rule in her book, All Your Worth: The Ultimate Lifetime Money Plan. The general principle is to divide your after-tax income or your net income and allocate it for spending on your needs (50%), wants (30%), and savings (20%).

This budget rule aims to help people reach their financial goals. It would help if you spent the first half of your net income on your needs, while the other half should be divided between savings and debt repayment (20%) and anything you want (30%). This template aims to help individuals prepare for emergencies and retirement.

The need to save is more important than ever as everyone is affected by the pandemic. People are losing their jobs, some businesses are closing, and debts are piling up, so saving up for the rainy days is more critical. As of March 2020, Americans have significantly high debt levels, totaling $14.3 trillion.

However, if you live paycheck-to-paycheck, it might not be easy to start saving. It can be overwhelming and frustrating, but you can start by identifying monthly bills that you can reduce to assess if changes are manageable. After understanding how you spend your money every month, you should look for money-saving opportunities. This article will discuss tips and ways to save. Try what works best for you in managing your money and savings until you reach your financial goals.

Another way to jumpstart 20% of your income is to cut your spending. A more detailed discussion on how to cut your spending will be discussed, but one of the ways you can start is to follow the 30-day Rule.

The 30-day rule is a simple way to manage your spending by waiting 30 days before purchasing something you want. If you forget about the time, you can likely live without it. But if, after 30 days, you still want the item and can afford it, you can purchase it. If you struggle to spend less, this is an excellent way to avoid mindless spending.

 

2. Open separate savings account to save your money.

If you have targeted financial goals, having multiple savings accounts is a good start. By having multiple accounts, it is easier to keep track of your financial goals. You have a clear distinction among your financial goals, and you can prioritize how you save for each account. However, if you are starting to save, having one separate savings account is a good move.

One of the advantages of having multiple savings accounts is tracking your progress towards your financial goals. It’s easier for you to check your account balances, so you can always get back on track if you miss your target.

Another advantage is higher interest rates. Every time you add money to the savings account, the interest grows. Not all savings accounts are equal in interest rates and annual percentage yield (APY), so dividing your money across different savings accounts from other banks gives you the advantage of higher interest rates.

Moreover, if you are a super saver, you can protect your savings. FDIC insurance coverage protects your savings account at certain limits. The limit per depositor, per insured bank, and ownership category across all funds is $250,000. If you have saved more than $250,000, you can open multiple savings accounts at different banks and continue earning interest while being protected with FDIC coverage limits at each bank.

If you are planning to have multiple savings accounts, you could establish a specific targeted savings goal with this example:

● $5,000 for your emergency fund
● $5,000 for your house fund
● $1,500 for new gadget or furniture

After setting your targeted savings goals, break down those goals by setting a time frame for each plan. For instance, if you want to reach your $5,000 emergency fund goal in the next five months, you have to save at least $1,000 a month in that account. You can then apply the same system for your other targeted savings goal. Using this strategy allows you to be more mindful and intentional about how much you save each month.

 

3. Make a budget

In creating a budget, the Bank of America has suggested six (6) steps to making a personal budget that works for you:

a. Note your net income

In creating a budget, you should first identify the amount of money coming in. In computing your net income, subtract your deductions for Social Security, taxes, 401(k), and flexible spending account allocations. It is also better to have an extra source of income if you lose your job.

b. Track your spending

You can identify what you are spending by tracking and categorizing what you spend on. First, identify your fixed expenses, such as your monthly bills and rent or mortgage. After listing your fixed expenses, continue to track your variable expenses, which may change monthly such as gas, groceries, and entertainment. You can cut back, or you can find opportunities to cut back from your variable expenses. Moreover, credit card and bank statements are also easier to itemize and categorize, so you can start with them when you make your tracker.

The different tools that you can use in tracking and spending will be discussed further in the article.

c. Set your goals

The next step is to list the short-term and long-term financial goals that you want to accomplish. In creating your short-term goals, you should set them to no longer than a year to achieve. For long-term goals like retirement or your children’s education, it might take many years to accomplish. If you know what your goals are, you can take the necessary actions to achieve that goal. For instance, if your short-term goal is to pay off your credit card debt, you can start taking action by cutting your spending each month.

d. Make a plan

In making a plan, use your variable and fixed expenses to guide how you will spend monthly. Moreover, you can categorize your expenses further between the things you need to have and what you want to have. When making adjustments to your budgets, the difference between these two is essential.

e. Adjust your habits if necessary

The next step you can take is to evaluate how much money you are saving or which area you can cut back to save more money for your goals. The first area to look at are the want-to-have expenses. Can you skip that Starbucks coffee for a brewed coffee at home? Or can you watch a movie at home instead of going to the cinemas? Adjust the numbers you have tracked and see if you can save money.

After evaluating your wants, you should also assess your needs. For example, if you have an internet connection at home, do you need the fastest yet most expensive one available?

If you have already evaluated your wants and needs and the numbers are still not adjusting, you should assess your fixed expenses next. However, changing your fixed payments may require more effort and discipline. This move is a massive compromise for your budget, so you must think about it thoroughly.

However, do not overlook the little stuff because small savings can add up to money. By making minor adjustments at a time, you can have extra money accumulated.

f. Keep checking in

Lastly, you should review our budget regularly to keep yourself accountable. If possible, you can compare your monthly expenses to other people’s monthly spending to know how to keep track of your financial goals. While working towards your financial goals, your expenses might increase, or your income might increase, so it’s important to keep track of your budget.

 

4. Track your spending.

You can track your spending using Microsoft Excel and different tracking apps. Here is a list of the apps you can try:

a. Money in Excel

Money in Excel is the only template that securely connects to your financial institutions to sync your accounts into an Excel spreadsheet.

b. Personal Budget Template

On the other hand, you can create a DIY with the Personal Budget Template in Excel. It helps you track your monthly budget by income and expenses.

c. You Need a Budget (YNAB)

This application allows you to sync your bank accounts, import data from your files, or manually enter each transaction. Although YNAB is a bit costly, the company offers a 34-day free trial.

d. Mint

Mint is one of the most popular budgeting apps that lets you set up bill payment reminders, track your investments, and access your TransUnion credit score.

e. Simplifi by Quicken

This app offers a personalized spending plan with real-time updates of your spending for each month. It also syncs with your bank accounts so you can keep track of your financial goals.

f. Zeta

This app is designed for couples regardless of whether they have joint finances or not. Couples can sync various accounts to track spending and manage bills together. They can also sign up for a joint no-fee banking account and cards to the Allpoint ATM network.

 

5. Pay off your credit card and other high-interest loans.

If you want to pay off your credit card, you can first use a balance transfer credit card. By doing this, you can transfer debt from high-interest credit cards to a balance transfer credit card that doesn’t have interest for up to 20 months. A new card offers a low or 0% introductory interest rate period of six (6) to 21 months.

Another way to get out of debt is to complete a balance transfer by transferring debt from a high-interest credit card(s) to a credit card that offers no interest for up to 20 months. A new card offers a low or 0% introductory interest rate of six (6) to 21 months. You won’t incur interest and charges during this period, and the payments will go directly to your principal balance.

If you want to pay off a large amount of debt for several credit cards, you can consider taking a personal loan to consolidate your debt. If your credit score is good, you may qualify for a personal loan that will cover your entire balance.

Moreover, it is also helpful to pay off high-interest debt first. Known as the avalanche method of debt repayment, you can minimize interest this way. On the other hand, you can also pay your debt using the snowball method or paying off the smallest balance first to give you confidence in debt repayment. However, financial advisors don’t usually recommend this method as it might result in more interest charges.

There are many ways to repay your debt, but sticking to the plan that works best for you is important.

 

6. Limit dining outside.

One way of limiting dining outside is buying in bulk when you do grocery shopping. Instead of dining outside often, plan your meals and buy groceries, fruits, and vegetables in bulk. Aside from saving money, you can also help reduce waste by trying out zero-waste grocery shopping and opting to buy from the Whole Foods section.

If your job requires you to work in the office instead of working from home, eating outside or buying takeouts is tempting. Unless your job gives you free meals, packing your lunch and snacks is an excellent way to save money. You can also prepare pre-packed meals to save time in training them before you leave for work.

Another way to limit dining outside is to create micro budgets. Break big monthly budgets into smaller weekly budgets, so you won’t think you are carrying unlimited money when dining outside. If you set microbudgets, you can track your spending and limit yourself from spending beyond your weekly budget.

 

7. Avoid buying unnecessary things.

The first step to avoiding buying unnecessary things is to understand why you are buying them in the first place. For you to avoid shopping addiction, you must always keep your habits at bay.

Moreover, having a financial goal as your motivation will help you avoid buying unnecessary things. Before you check out what’s in your cart, think of the trip you have been planning or the retirement plan you’ve been eyeing.

Another way to be accountable for yourself is to take an inventory of the things you have. Having a list of what you have can remind you that you have enough, and instead of spending more on unnecessary things, you can save it for something else or save it in your bank account. After inventorying what you have, you can start decluttering the things you don’t need. If you don’t know where to start, you can try the 30-Day Minimalism Game, which challenges you to get rid of household items one by one.

After decluttering, you can consider practicing minimalism. Minimalism is about doing more with having less. This principle allows you to own a few possessions to make more time and save more money, which can be very liberating as you are intentional with what you need in your life.

Moreover, using a cash budget by using cash envelopes is also an excellent way to avoid buying unnecessary things. You can set a specific budget based on what you previously planned to buy. Putting a particular amount of cash to spend will help you stay on your budget because once it’s gone, it’s gone.

Despite all the steps mentioned above, however, you shouldn’t be too hard on yourself. You are just a human being, after all. Of course, you should be accountable for the goals you set, but you can always start over again if you fail along the way.

After developing these habits, what are the things that you should save money for?

Emergency fund. The first thing that you need to focus on is building an emergency fund- 3-6 months of your salary. An emergency fund is essential for preparing for life’s uncertainties, such as losing a job, getting sick or having an accident, or going through a significant life change. It is recommended to save enough to cover three to six months of your salary. If this amount is too intimidating, you can start by setting several smaller savings goals. Starting small can also help you stick to a regular contribution. Moreover, you can also choose to automate your savings so you won’t be tempted to spend the money.

While saving for your emergency fund, don’t increase your spending or open new credit cards as much as possible. Unless you are earning more or you have a side-hustle, don’t increase your monthly expenditure.

However, keep in mind to not over save for your emergency fund. An emergency fund is meant to be accessed quickly, so you are probably storing it in a low-yield account that accumulates an extremely low rate of interest.

Insurance. It is essential to save for preventive healthcare and health insurance. Preventive healthcare reduces the risks of diseases so you can live a healthier and longer life. In the United States, chronic diseases have become a major cause of death, but this can be prevented. Preventive healthcare also helps you avoid spending on costly chronic conditions.

Moreover, it is also essential to choose a health insurance plan that works for you. If your employer doesn’t provide health insurance, shop on the public marketplace or federal marketplace to find the lowest premiums. If you are in the U.S., you can visit HealthCare.gov and enter your ZIP code to enroll. On the other hand, you can purchase insurance directly through an insurance agent.

If you have decided where to purchase your insurance, the next step you need to do is to compare different plans suitable for you and your family’s needs. It would be best if you also considered out-of-pocket costs and benefits when choosing health insurance.

Retirement and Investment. Saving early for retirement allows you to grow your retirement savings, and it would be easier for you to achieve your financial goals in the future. However, the money you set for retirement doesn’t need to sit in a savings account. You can leverage unit investment trust funds (UITFs) and time deposits if you want to save for wealth-building. Through UITFs, you can let professionals manage your investments for you. On the other hand, a time deposit with higher rates allows you to leave your money alone for a pre-specified period while accumulating guaranteed interest.

 

Takeaway

Life is indeed full of uncertainties, and as society is rapidly changing, we must learn to adapt and thrive. Although the economy is beginning to recover and reopen, financial security is essential whether we are in a pandemic or not. The path to financial security can be overwhelming but starting somewhere is what’s important.