Accounting for your life: tips for savings
You hear it all the time, from everyone and from everywhere: saving money is important. You’re probably overwhelmed by the countless tips on how to save and how much to save, sometimes grappling with conflicting opinions.
There’s no denying that saving money is a cornerstone of financial wellness, but the idea itself is vague. Since everyone’s situation is unique, simply telling someone to save their money raises a lot of questions, like “how much should I save?” or “where should I put my savings?” It’s wrong to impose some arbitrary rule like “everyone should save $500 a month,” since some people can’t afford that, while for $500 isn’t enough for others.
While there is no one-size-fits-all formula for determining exactly how much you save, saving money is less about the number itself than the mindset behind it. And while there’s a lot of debate surrounding the principles of successful saving, there are a few recurring themes.
First, it’s critical that you have a long-term financial goal, where long-term means anywhere from five to 15 years down the line. Setting a destination for yourself is an important first step because if you don’t know where you’re going, how are you going to know how to get there? A long-term financial goal is tied directly to how much you want to save. Say for example you decide that you want $25,000 in savings by the age of 24. From there, it’s a simple calculation to see how much you should be saving each month. Of course, that would be an oversimplification since you need to take other aspects of your budget into account, but it’s the same general idea: you must know where the goal is before you try to score.
Second, successful saving is heavily dependent on discipline. Continuously and consistently saving while resisting the urge to spend your savings is necessary for accumulating wealth. While saving $50 here or $200 there is a good start, it’s important that you have a plan in place for when you get your paycheck so that saving money becomes routine. Start by considering necessary expenses like housing, clothing, and food, as well as your discretionary spending on recreation and the occasional splurge. Once you have that portion of your budget figured out, set in stone how much of each paycheck goes towards savings, and stick with it, so that you’re not tempted while dividing the paycheck. Better yet, automate savings deposits so that you don’t even see the money being stored away, almost like it doesn’t even exist. Out of sight, out of mind.
Third, it’s important to realize that saving does not mean depriving yourself of the things that you enjoy. It might feel that way with money being locked away that you won’t see for a long time but understand that even with saving as a part of your budget, you can still budget for fun. Where you draw the line is up to you, so long as a line does exist. Plus, reframing the way you think about saving so that you view it as delayed gratification rather than deprivation is as important as putting money away.
Last, buy fewer things but buy the best. This may sound like it’s not directly related to the idea of saving, but it is. Let’s say that you’re in the market for a new laptop, and you have options ranging from $300 to $800. Now based solely off the price, you’d be tempted to go for the cheaper model because who doesn’t want to save an extra few hundred dollars? But consider this: how long will that laptop last you based on the work you’re doing? If you know it’s not going to last very long and that it’s going to burn out rather quickly, buying the higher-end longer-lasting model might be the better option since it eliminates the cost (both in money and time) in the near future of having to switch laptops. Not only will you feel better about the possessions you’ve consciously chosen to invest in, but you’ll also be saving more by not having to always hunt around for replacements.
These four principles are far from exhaustive, but as with all things in this column, they represent a good starting point. Asking yourself these difficult questions now can help you formulate a concrete game plan on how to better manage your money in the future so that when you get that first big paycheck, you don’t end up blowing it all on temporary thrills.
So now that you have this pile of money set aside, where should you put it? Most people opt to just keep it in a savings account through their bank, but as we’ll see next week, there are better options for making sure your money not only sits there but actually grows over time.