Saving money can be challenging, but it’s achievable without extreme measures like living off ramen, having multiple roommates, or sacrificing all of life’s joys. How?
To save money in 2023, follow these two steps: First, develop a plan by examining your expenses and creating a budget. Second, reduce your expenditure. Are you prepared to begin? This is your 2023 money-saving instruction manual.
Prepare to Start Saving
If you’re unsure about how to begin, having a plan is key to avoiding feeling overwhelmed. Don’t fret. By approaching these steps one at a time, you’ll find that saving money isn’t as daunting, even if you have limited funds.
1. Track Your Expenses
To begin, it is important to review your expenditure in recent months to identify where you may have overspent. Although it may not be pleasant, it is necessary. An easier way to do this is by using the Empower app, which can automate the process of analyzing your bank statements.
Empower is a tool that can assist you in understanding your spending habits and creating a budget to keep you on track. It provides a fee-free banking account option or allows you to connect with your existing accounts and monitors your spending. By categorizing your purchases, it helps you identify areas where you may be overspending.
2. Set Short-Term and Long-Term Savings Goals
After reviewing your spending habits, you should establish achievable goals for saving money in the near future and in the long run. To clarify, short-term goals refer to targets that can be achieved relatively quickly, while long-term goals require more time and effort to reach.
- If you need to save money quickly, set a short-term savings goal. For instance, you could save $200 for a plane ticket home or start an emergency fund and aim to save $500 within three months.
- If you have a big goal in mind, consider committing to a savings plan that spans over a long period. For instance, you could save for a down payment on a home or plan for your children’s college fund. Additionally, considering your retirement plan is also a good idea if you’re considering a long-term goal.
Having both short-term and long-term goals is essential for finding a balance between enjoying the present and preparing for the future.
3. Create a Budget
First, review your spending habits to manage your personal finances with your savings objectives in mind. Then, establish spending boundaries for yourself while being practical. For instance, if you currently spend $500 a month on groceries, don’t aim for a new food budget of $200. Achieving that would necessitate a total lifestyle modification.
If you’re feeling unsure about how to begin, you can utilize these two commonly used methods to establish some structure:
- The 50/20/30 budgeting method categorizes your expenses into three percentages: 50% for living expenses, 20% for financial goals, and 30% for personal spending. This budgeting plan is popular because it allows some leeway for personal expenditures.
- The 60/20/20 budgeting method divides your expenses into percentages. It suggests spending 60% of your income on necessities such as food, water, and shelter. 20% of your income can be used for discretionary spending; the remaining 20% should go towards savings. Financial advisers often recommend this plan because it prioritizes your needs before your wants.
Creating and adhering to a budget can be challenging; give yourself time and patience.
4. Be Smart About Where You Stash Your Savings
Have you thought about where to save the money you’re saving? You could consider some options that generate interest or returns so that your money doesn’t remain inactive. Here are some ideas:
- It is recommended to open a high-yield savings account with 2% APY or more. This type of account enables you to access your savings and earn interest conveniently. It’s ideal for building an emergency fund or saving for a vacation.
- Investing in a certificate of deposit (CD) can yield higher interest rates, but it has some limitations. CDs have specific maturity dates, so if you opt for a five-year CD, your funds will be locked in until maturity. You may face fines and charges if you withdraw the money beforehand. Additionally, you cannot make further deposits into a CD account.
- Two common options for long-term investment are stocks and bonds. Although investing in stocks comes with higher risk, it may have better returns if you remain invested through market fluctuations. On the other hand, bonds are generally less risky, but they offer lower returns. As a general guideline, younger investors can take on more risk.