Every responsible adult should be focused on savings. Savings for emergencies, savings for retirement, savings for big-ticket items or vacations, and savings for your children’s education are a few motivational reasons people should focus on spending less and saving more. Even though everyone should have a healthy savings account, many don’t, or if they do, it is meager and not worth enough to cover anything significant.
The best way to focus on saving more and spending less is to have a budget. Many people hear that word and believe it is difficult to give up things they enjoy or significantly change their lifestyle. If you are savings savvy and learn to make your money work for you, you can build savings without any significant lifestyle changes, and the few things you have to give up will be worth the sacrifice when you have a healthy and secure financial future. Here are five ways to boost your savings and get on the road to financial freedom.
Contribute to Retirement Funds
If your workplace offers a retirement plan such as a 401(k), you should contribute to that account from day one of employment. If you have not been contributing, meet with your human resources department to begin contributing. Most companies have a 401(k) matching program, you should contribute as much as you can afford, but at the very least, you should contribute the percentage of your income that your company will match. That matched amount is free money, and you should take full advantage of it.
Assess Your Expenditures
Having a working budget will make it easy to assess your expenditures. Your luxury, entertainment, or mad spending expenditures should be a small percentage of your spending. If you are spending more than 20% of your income on these expenses, it is time to cut expenditures you can live without. You will still have a fun lifestyle while saving a lot.
Smart Investments
Making smart investments in stocks, real estate, bonds, and mutual funds are some ways to earn higher returns on your earnings. However, keep in mind that each of these types of investments is different and carries varying risk levels. When it comes to investing, you should hire a professional financial planner or investment specialist. Though some investors have learned how to invest intelligently because there are risks involved in these investments, you cannot suggest you handle it if you are an amateur. Regardless of hiring a professional to help you invest, you should know and understand your investments on some level.
Live Debt-Free
The best advice that can be given is to resist owning credit cards. Most credit cards carry high interest and increase the risk on your credit score if you have difficulty paying on time or cannot pay at all. Also, paying minimum payments means you will be paying interest for the first several payments before you pay the principal. Credit card debt is the number one bad debt generating type of credit and should be avoided. If you decide to carry a credit card for emergencies, only use it for true emergencies and immediately pay the balance. However, it would be more beneficial for you to save money for emergencies, as that money will have no interest or risk of bad debt.
If you need to purchase a big-ticket item on credit, such as a car or home, pay more than the minimums as this will save you thousands of dollars on interest.
Health Savings Account
Saving accounts are a secure way to save protect your money for the future. They can prepare you financially for emergencies and other plans that require funding. You need to realize that your future financial health and freedom depend on your savings, and for this reason, you need to make saving more and spending less a priority. To save effectively, it is recommended that you use the reliable bucket method by following these three steps:
- The safe and secure bucket. This bucket should contain at least 50% to a maximum of 70 % of your savings. This savings amount is dedicated entirely to low-risk investments such as mutual funds, real estate, or bonds.
- The growth bucket. This bucket is focused on rapid growth and is used to invest in higher-risk, higher-return investments. This can be anywhere from 20% to 40% of your savings, depending on the percentage of your safe and secure bucket.
- The luxury bucket. This bucket should only be 10% of your savings and can be used for entertainment, luxury items, or vacations.
The key to saving more and spending less is to make little changes and be thoughtful in your decisions regarding savings and investments. This mindset will have your future finances healthy while having the least effect on your current spending and lifestyle.
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