If there’s one thing that everyone says they will do with their money but almost never follow through on, it’s saving money. Recent studies show that 39% of American households have less than $1,000 saved and if you’re living in the 21st century like I am then you will know that $1,000 doesn’t buy you much these days. So what’s causing most people to fail in their personal saving efforts? Keep reading and you’ll find out as well as learn 5 strategies you can use to save more money!
Let’s face it, Americans aren’t great at saving. Most people have heard the overquoted statistic that almost half of the United States wouldn’t be able to handle an unexpected $400 expense and would have to go into debt to pay it. Another 21 percent reported that they’d deal with three months of unemployment by borrowing from friends, selling assets, or taking out payday loans. This is simply a few examples of just how dire many people’s financial situations are and quite frankly I empathize with them. Saving money can be hard and your efforts can be affected by numerous factors like your income, number of dependents, priorities in life and many other things.
So let’s go over a few reasons why saving can be extremely challenging and then I will walk you through 5 ways you can save more money and see your wealth grow over time! The first reason it’s hard to save is because we are constantly fighting the temptation to spend. The consumer centric culture we live in today bombards us with ads of new clothes, electronic and cars we must own if we want to keep up with our peers. While some people can fend off these aggressive tactics, others lack the willpower to do so and this can cause them to spend money that otherwise would be used for saving.
The next reason people find it hard to save is that they need relief from their 9 to 5 grind and one of the only ways they know how to make themselves feel better is by turning to retail therapy. The sad reality is that most people aren’t in love with their jobs. A 2016 Gallup poll showed that 71% of workers aren’t engaged at work and at least 60% are open to new job opportunities. With these statistics in mind, it’s no wonder people need to relieve the stress and disappointment they get from their daily work routine.
And while some people may start out treating themselves with a small purchase after a long work week, things can spiral out of control pretty easily. This is what I’ve explained on this channel as the “what the hell” effect where you start to spend money and as you realize you’ve blown your initial budget you then go wild and continue to spend telling yourself you will be more responsible next month.
Finally, if you do start to make efforts to save money every month, they can seem futile, especially in the beginning. For instance, if you are making a low salary and are barely able to cover your bills, that $50 you save a month won’t seem like it’s helping you grow your wealth by any means. That $50 represents one dinner out or one tank of gas in your car and while these small incremental savings won’t make you rich overnight, they do allow you to start building the habit of saving which is a step in the right direction. Ultimately, saving can be tough which is why I will now share 5 ways you can set yourself up to save more money and feel good about your personal financial position.
Tip #1: Focus On The Process, Not The Outcome
Like I just mentioned, when you are just starting out on your own saving journey, making big financial leaps in wealth is simply unrealistic. In the beginning, your main focus should be on crafting the habit of budgeting and ensuring that the money target you aim to hit is met at the end of every month.
Now, where people go wrong when trying to save more money is focusing on the outcome instead of the process. They picture all the fun the will have travelling the world with the money they’ve saved up or how nice it will be when they can afford a new car. While it is good to have rewards tied to your savings efforts, they can actually deter your ability to save. You see, the magnitude of your financial goals can either aid or detract from your success.
Let’s say you are putting $300 aside every month to buy a new car that costs $30,000. After 6 months, you have $1,800 in your car savings account and while you are proud of your progress, you sigh at the thought of how many more years it will take to be able to afford that new car you’ve been wanting to buy. So instead, you decide to blow that $1,800 on a new TV justifying that you will never save up the $30,000 you need anyways. Now, there is nothing wrong with having large financial goals but without the money saving habit and motivation in place, your efforts can be squandered by their magnitude.
This is why I recommend that you focus on the process, on simply doing the thing that needs to be done, and reward yourself (in small ways) to keep your motivation going.
Tip #2: Keep Your Savings Out Of Sight
When it comes to money, sometimes you need to get creative in the methods you use to build your wealth and one of the tricks I have used to save more money over the years is by keeping my money out of sight.
Where people go wrong when trying to save more money is by keeping all of the cash in one single place. If all your sources of income are routed into one single account then you will constantly have access to that money making it much, much easier to spend (trust me, I had to learn this lesson the hard way). In fact, when I was just starting my career, the excitement of earning a real working salary turned me into a kid in a candy shop and I spent the entirety of every paycheck on useless things like new phones and clothes that I rarely ever wear.
What worked for me, and many of my friends who also struggled with their spending, was to set controls on our savings accounts so we weren’t tempted to spend it. What I now suggest for those with less financial willpower, is to set up an untouchable account which is an account that you open and hand over the banking information and access card to a trusted family member or friend. This way, you will have no access to the account meaning that even if you wanted to spend the money that was accruing in that account there would be no way to do so.
Tip #3: Start A Spending Freeze
If you are truly committed to prioritizing saving money then one technique you can use to maximize your efforts is to implement a spending freeze.
Sadly in the United States, 78% of individuals are living paycheck to paycheck and to be blunt, a good portion of these people have put themselves in this situation by overspending on frivolous items. While they would have money left over to save at the end of every month based on their level of income, their desire to keep up with the Joneses and get that rush of endorphins that comes with shopping is often too much to resist.
Admittedly, I too enjoy the positive feelings I get from spending money but I think that overall people are out of touch when it comes to the lasting value of our purchases. Sure, you may feel great during the moment and a few hours after an exciting purchase but in my experience this feeling is soon fleeting putting you back to where you started emotionally, just poorer. This is where a spending freeze comes in.
A spending freeze is a period of time during which you stop spending money. Now, while it is almost impossible to spend absolutely no money due to housing bills and groceries, during this period of abstinence, you should be cutting out all unnecessary purchase. This means no expensive lattes and no new clothes. The goal of implementing a spending freeze is to keep your financial outlays to an absolute minimum. Implementing a spending freeze comes with two main benefits.
First, you will naturally save money given that your spending has decreased. While this is a positive of implementing this approach, I think that the ultimate benefit relates to the spending high I just mentioned. When you cut out frivolous spending, you realize over time that you are no less unhappy than when you were spending to improve your mood. This is a great technique to learn the difference between your wants and needs and will certainly have you saving money as you streamline your monthly expenses.
Tip #4: Bank Your Windfalls
Saving money is as much of a mental game as it is a financial one and nothing gets you more motivated to grow your wealth than seeing your balance account’s balance skyrocket. Unfortunately, as I said earlier, most people’s saving progress will come in the form of small, but still valuable, saving increments. Whether that’s allocating $50 a paycheck to your untouchable fund or cutting out your morning Starbucks latte, it’s going to take a little while to build up some serious cash. However, there are certain times in life where we are the recipients of a larger than normal influx of money and these events give us the opportunity to make noticeable progress in our savings efforts. These windfalls could come in the form of a bonus, a large tax refund, or even an inheritance. But like I said these events offer us an opportunity to increase our wealth meaning that you must make financially responsible decisions when you find yourself in this situation.
Now, if you’re like the majority of people who are swept up in the consumer centric culture we live in today then, of course, any windfall you receive will be earmarked for spending. And that’s one option. But by putting that money (or most of it, anyway) into savings, you’re getting closer to that moment when you’ve saved up enough that you feel invested, when you no longer look at your balance as some piddling nothing, but rather as something to be protected and cultivated.
Once you hit that place, then saving becomes a lot easier. It stops being drudgery, and starts being something you want to do. You experience, for maybe the first time, what financial security feels like. And it feels good, so you’ll want to get more of it.
Tip #5: Earn More Income
Over the last few years, I have made major strides in my savings goals. Actions like following a budget, tracking my spending and being ruthless in my analysis of my wants versus my needs have all allowed me to grow my wealth. However, the culmination of all these actions combined pale in comparison to the power that earning more income can have on your savings.
Once I dove into the world of freelancing, I started to earn an extra couple thousand dollars a month and instead of spending this supplementary cash, I decided to save it. Well, let me tell you that this made the world of a difference in my savings efforts. The challenge with saving money is that you can only reduce your costs by so much as we saw in the example of implementing a spending freeze.
So instead, you must tackle the issue by going on the offensive and earning more money. Of course, it goes without saying that you must save this extra cash versus spending it but by making those extra deposits, your saving momentum and motivation will skyrocket along with your bank balance. Therefore, if you want to put your savings efforts on steroids then you must start to earn more money.