With Kelsa Dickey
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If you have little cash left over at the end of each month, it may feel like saving money is out of your reach. But it’s not true. Even if the budget is tight, most people can find a way to save money and it can be even more important to save when you have so little extra.
“When your budget is tight, one random expense has a huge impact because it’s harder to come up with the money,” says Kelsa Dickey, owner of Fiscal Fitness Phoenix in Tempe, Arizona.
Finding a way to start saving money so that unexpected expenses aren’t so devastating may not be easy. But it’s certainly possible and can yield long term results.
“Being a ‘saver’ as opposed to a ‘spender’ is a mindset that may not be natural to most people,” says Aries Jimenez, director of business development for San Diego Wealth Management. “However, it can be developed through practice.”
Stop buying things without shopping around for the best price, says Keith Klein, CFP professional and principal of Turning Pointe Wealth Management in Phoenix. Make a commitment to comparison shop for essentials and look for coupons and sales online or in your local newspaper. Then, buy the lowest priced items.
Don’t stop there. Take the difference of the amount you paid and the amount you would normally spend onthe item and put that money into a savings account. Even if it’s just a few dollars per shopping trip, those small sums will add up, Klein says.
Keep the change
It seems old fashioned, but take the loose change out of your pocket, your change purse or your car tray, and save it in a jar. Look for ways to add more money to your jar. For instance, every time you withdraw cash from the ATM, put 10% of what you withdraw into your cookie jar savings, Klein says.
Every month or quarter, count the money you’ve accumulated in your jar and add it to your savings account, Klein says.
Pay yourself first
If your strategy is to wait until everything else is paid and save whatever is left over, reconsider your process, Jimenez says. “It is much better to pay yourself first by creating a savings goal each month, then paying fixed expenses and budgeting the rest for variable spending,” he says.
Consider putting most of your paycheck into your savings account and making a recurring weekly transfer to cover necessary expenses. “This helps you keep on track, then make a decision each week on where any excess should go: to remain in the account to cover any upcoming expenses or to be dedicated as extra savings,” Jimenez says.
Save with purpose
It may be difficult to put money back simply for general savings, so it’s important to have a clear reason for your savings. “The purpose may be to have emergency funds, to have a vacation fund or a variety of other reasons,” San Diego Wealth Management’s Jimenez says. “But without knowing that ‘why,’ it is very easy to neglect or dip back into that fund for other purposes.”
Dickey of Fiscal Fitness Phoenix recommends opening several different savings accounts, each with a clear purpose. You might have a car repair fund, a clothing fund and a vacation fund. “Put what little you have left into each one whenever possible,” Dickey says, even if it’s just $25 in each.
“Saving with a purpose is crucial. Remind yourself that if you’re saving money, you’re doing something right, so even if the amount is small, it’s still better than nothing.”
Make it automatic
It’s much easier to save when you don’t have to rely on yourself to transfer funds into your savings account. Klein recommends having your employer divide your automatic paycheck deposit into a checking account and a savings account. “Most automatic deposit systems accommodate multiple accounts, so all you need to do is decide how much to put into savings each check, and you will never even see that money coming out,” he says. “Even dividing it three ways enables you to direct money to your billpay checking account, an amount for short term savings and 10% to 20% into longer term savings.”
If you’re self-employed, schedule automatic transfers from your main checking account to your purpose based savings accounts on a recurring basis, Jimenez says.
Lose the credit cards
“If you don’t have any money to save at the end of the month, you shouldn’t be putting more onto credit cards,” says Bob Gavlak, CFP professional and wealth adviser at Strategic Wealth Partners in Cleveland. “The first goal should be to pay them down and get rid of them so that you can start to work from a cash basis as opposed to a debt basis.” Rather than using a credit card to fund living expenses that are outside of your income, cut out non essentials and focus on eliminating your use of credit cards. If your extra cash each month is spent on making credit card payments, you’ll never be able to save and get closer to your financial goals.
Create a budget
While setting a budget can be tough, it’s the best way to become a disciplined saver, Gavlak says. Start by determining your fixed expenses, and then look at your needs for other expenses food, gas, clothing, entertainment, etc. Determine a number for weekly expenses and challenge yourself to stay within that budget. Gavlak recommends setting a specific amount, such as $100 a week, and taking that out of the bank in cash at the beginning of the week. “Only use that money for the week and try not to allow yourself to dip into anything else,” he says. “Then, try to go down to $90 or $80 per week to see what you really need.” Once you’ve grown accustomed to living on your budget, you’ll open up more money for saving towardvarious goals.
Klein of Turning Pointe Wealth Management recommends that most people work toward saving 20% of their earnings each year. But that’s not easy to do.
“I have found that when people commit to this savings level, often some reason will come up in the first few months that will discourage the saving,” Klein says. “Maybe the kids need braces, a tree falls on the house or the car gets a dent.”
If that person works through the crisis and continues on the savings track, they’re more prepared to deal with future crises that may arise. Eventually, they begin to think of other ways to deal with it, rather than dipping into the savings, he says.
After a year of forcing yourself to save and receiving the self-esteem that comes with it, most people will be committed to the lifestyle of saving and often will find ways to save even more, Klein says.