We’ve all been there. We know the feeling. It’s Friday, and you are beside yourself with excitement. You just got paid, and now you want to play! But easy there, tiger. Don’t go spending that all in one place. If you keep that up, you’ll either never retire and must work forever, or you will find yourself struggling should you ever have any stroke of bad luck. Fear not, friend! Today we are going to cover good saving habits, and how they can help you live your best life!
A Perspective on your Best Life
This phrase, “living your best life”, has become extremely popular in the last few years. It is almost impossible to browse through any of our social media feeds without encountering a friend or a coworker who posted #livingmybestlife. Now sometimes, that can mean they were doing something free, like spending a day at the beach, or simply spending time with people they love. But when you see these tags with something that was clearly a splurge, or an impulse, then I would say that is not their best life. It is simply a highlight, nothing more, nothing less. Now don’t get me wrong, I enjoy these as much as the next person. We all do, and it’s awesome. But the next day, it’s back to reality (oh, there goes gravity) and we get back to our responsibilities. Why? Because we know that our best life isn’t a one day event. It isn’t any single moment. It spans years, and it really is the longest thing we will ever do. So, lets take a few minutes to figure out how to plan for our best life.
First Things First, Set Some Money Aside
Like I said before, I know that tempting feeling. You’ve been at work all week, you just got a paycheck and you are ready and excited to spend it. But before you do that, check your bank account, and transfer 20% of your new paycheck from your checking account to your savings account (if you have direct deposit). If you get a paper check, go to the bank and make sure to ask the nice person behind the 6 inch glass to put 20% of that check into your savings. If your bank gives you the option, make it automatic.
“20?!” you ask me, incredulously. “Yup. 20%” I reply. According to The Teachers Insurance and Annuity Association of America-College Retirement Equities Fund (TIAA, for short), you should not only put at least 20% of your earnings into a savings account, you should follow what is commonly known as the 50/30/20 rule of thumb. That means; 50% (maximum) towards your necessities, 30% towards discretionary items, and 20% (yes, 20%) towards savings. So get to it!
Keep Track of Your Spending
This is a shockingly common problem. You start spending, lose track of what you bought (especially when we go out to dinner, or some similar activity), and suddenly, your paycheck disappears as if through black magic. But no, odds are, we just weren’t paying attention.
Many people have also developed a bad habit of either throwing away their receipts, or not even bothering to look at their bank accounts beyond just checking their balance. Keep your statements, go through them, and account for every cent you spent (but only make rhymes if you are feeling festive.) By doing this, you can avoid nasty surprises in the future.
Find Ways to Minimize your Expenses
If you find yourself not saving as much money as you should, follow the previous step, find what is costing you so much, and if it is not essential, and either cut it out or search for more affordable alternatives. For example, a few things you could do include:
- Cancel any memberships/subscriptions you don’t use or are redundant, especially if they renew automatically
- If you go out frequently, try to find more cost effective events or locales. You’d be surprised at what hidden treasures you can find in your community!
- If you see something costly that you really want, sleep on it. Don’t act impulsively and just buy it spur of the moment. Take a breath, wait a day or two, and then make an objective decision.
Moving right along to the next essential tip:
Maintain an Emergency Fund
As pretty much everyone who has ever walked the Earth can tell you, life is unpredictable, things go wrong. That’s just the way it is. So, if you are practicing the 50/30/20 rule (If you aren’t, better start now), take money left over from the 50/30 portion that you didn’t spend (can’t sacrifice the savings) and set up a fund in case of emergencies. Like the old saying goes, an ounce of prevention is worth a pound of cure.
Speaking of emergency funds, it is also extremely prudent to consider life insurance. Whether you name your parents or you children as beneficiaries, this is the “last line of defense” so to speak. And frankly, with life being as unpredictable as it is, this is one service where the sooner, the better. Keep in mind, as we age, life insurance gets more expensive.
Additionally, you can attach riders to a policy. That is to say, an extra add-on that could help in specific situations. Chief among these is the Accelerated Death Benefit. These are activated upon diagnosis of a terminal illness, and is typically used to cover medical treatments. Here are some important facts to know about Accelerated Death Benefits in general, per Investopedia:
- Accelerated death benefits are typically not taxed as income.
- In order to qualify for an accelerated death benefit, a policy owner needs to provide proof that he or she is chronically or terminally ill.
- Taking accelerated death benefits will reduce the amount of money received by beneficiaries.
- It may be possible to borrow money from a life insurance policy rather than receive benefits in a lump sum.
Set Goals for Your Savings
Simple, but tried and true. Think of the things you really want to do with your life. Whether it be getting married, early retirement, or any big idea you can think of, find out how much it costs, and then figure out how long it will take.
Pick the Right Tools
Decide on what tools you want to use to save your money. Aside from a savings account, you can also get a CD (certificate of deposit), which locks in your money for a set period of time and generally has higher rates than a savings account. For longer term savings, consider FDIC insured Individual Retirement Accounts (IRAs) which are tax efficient!
Additionally, a simple way of saving, and possibly earning, more money comes by way of apps! Some of these, such as Acorns or Robinhood are apps designed to invest “spare change”, or rather, it rounds up the change from your purchases, and saves or invests them. These, combined with budgeting apps, such as Mint, can help you stem the flow of your expenses and keep more of your hard earned money in you pocket!
Watch it grow!
Easier said than done, but follow the tips explained, check your accounts every month so that you can fix any issues that may arise in a prompt manner.
So now that we have covered how to help you save more money, get to it! Before you know it, you will find these to be habitual, and you will reap the rewards!