5 Essential Tips To Save Money
Nothing is impossible in terms of improving your financial life and all it takes is to take the first step. However, the very first step is the often the hardest one. Planning and developing your savings plan can be difficult so we have rounded up 5 essential tips on how to save money to get you started.
Keep track of your expenses
The first step to save money is to have a clear view of where your money went. Keeping track of all your expenses will give you an idea of how much you spend every day. Every coffee, eating out, transportation costs and every penny you spent should be recorded. In tracking your expenses, it is better if you have your data organized by categories — food, transportation, gas, groceries — so you will have an idea on the chunk of your spending. Doing this will help you know where to cut down in order for you to save money.
There are a lot of ways you can do in order to keep track of your expenses. You can write it down on a piece of paper, you can use spreadsheet programs or even smartphone apps to keep track every penny spent. Personally, I prefer using personal finance apps as I am a heavy smartphone user and I am able to categorize every expense that I enter. Also, these apps usually have a summary in form of charts that shows your spending in few months time. In this way, it gives you an idea of which month did you spend more and which category you spend the most.
Establish your budget
Once you have figured out your regular spending, the next step is to create a budget. In creating your budget, you first need to find out on where your money is going. How much is being spent on groceries, gas, utilities, entertainment? You have to keep track of your spending in at least 2 – 3 months in order for you to see a trend of your spending in a typical month. Once you have a clear picture of your spending, you will be able to spot problem areas and this will give you an idea of where to cut down. Then, use that money and put it on your savings. Continue to do this until you effortlessly save money or without you even knowing.
Pay yourself first
After you have identified your typical spending and cutting down some unnecessary costs, you should already have a few spare money that you have set aside into your savings. However, there’s another trick in order for you to save more money — paying yourself first. Paying yourself first is setting aside a certain amount of money or 20% percent of your income before anything else. It can be simply explained through this formula: Income – Savings = Expenses. Most of the people, however, are doing Income – Expenses = Savings instead. They receive their paycheck, set aside a portion of the money for expenses and save what is left. Big mistake. Saving money should be a part of your budget and should be the first thing you need to set aside prior to your expenses. Now, if your concern is “my salary is just enough for our expenses, how can we save?”, then, think again. Nothing is impossible. If this is what concerns you, then monitor and assess your spending and look at the problem areas. You should know what your needs and wants are so you’ll know what are those unnecessary expense. Finally, cut down those unnecessary expenses and set it aside for savings instead.
Live below your means
Most of the personal finance books and articles around the internet suggest this tip in order to save more. Living below your means is to spend less than what you earn. For example, if you are making P15,000 per month, then you should only spend less than that in order to save more. It is a simple tip but if not applied then you’ll never be able to save money.
Most of the people do this big mistake: they earn P15,000 per month for instance but spend P18,000 per month. Obviously, they spent beyond their means and go over P3,000 in spending. Where does that extra money come from? It is usually in a form of debt and most of the debt comes with interest. Then, another mistake happens, people pay only the minimum amount per month. What they fail to realize is that debt grows over time through the interest rates so the minimum payment practically goes into the drain as the interest is making it higher. The next thing you know, you are now in a huge debt.
Avoid this mistake by living below your means. If you are currently in debt, then pay it off first then learn to pay yourself first and live below your means. Do this and your future self will thank you for it.
Read personal finance books
There are a lot of easy-to-read personal finance books written by Filipinos that will help you on how to have a better financial life. It is difficult to understand the value of handling our money without any guidance so reading some personal finance books will be of great help. Likewise, you may also consider reading some articles on the web that explains the basics of financing and the best ways to save your money.
The truth is, you can.
Most of us are aware that we need to save money, put aside some for savings, stay out of debt but most of us do not take the first step. Getting started is often the hardest yet the most important step in terms of improving your financial life. There is no easy way of building wealth and there is no such thing as getting rich quick. All it takes is a proper mindset and your determination to be financially independent. Starting small is better than not starting at all so take that first step and your future self will thank you for it.