Here at my blog, The Life Hunt, I am a huge advocate for saving money. Whether you want to save for a goal, emergency fund, or in general, I believe it is absolutely vital to save money for the future.
I always assumed that every adult had a savings account they were constantly funneling money into. Wow, was I shocked when I discovered that wasn’t the case at all. I’ve had a few of my grown friends ask me why a savings account is important and how to start one.
So, why is a savings account important?
The number one reason is for security. We obviously can’t see into the future and therefore don’t know when a large out of pocket expense will occur. An emergency could happen such as a car breaking down or needing to visit a family member from another state. If there is no money saved up, that could seriously damage finances or even be out of the question.
Another reason it’s important is for big item purchases such as a car, house or wedding. It’s really difficult to save money through a checkings account that has money constantly going in and out of it. It’s also hard to mentally set aside money to save when it is all in one account.
How do you get started with saving money for the future? Here are my 6 steps below:
1. Open a Savings Account
Chances are you already have a savings account with your bank. If you don’t have an account open it’s easy to get one with any bank of your choosing. I personally have two savings accounts. One is for school tuition fees & emergencies and the other is for a house down payment. I never touch my house saving fund and I only touch my other account when I have to pay my tuition or if there is an emergency.
If you decide to open two accounts, one can be dedicated to short-term savings and the other to long-term savings. Whatever you do, understand that this money is not meant to be touched often. That’s what your checking account it for.
2. Figure Out What You are Saving For
Saving money for the future may not be the most exciting thing. After all, it’s money you’ve earned that just sits somewhere out of sight.
To make it more exciting, figure out what exactly you are saving your money for. A lot of people save up to get out of debt, pay a down payment on a house, get a new car, or take an awesome vacation.
If you need the motivation to save, just think about it as investing in your future trip to Europe or your future dream house. Doing this gives every single dollar a purpose and brings excitement to the process.
3. Dedicate a Monthly Deposit
The fastest way to save money for the future and grow your savings is to dedicate an amount to deposit each month. To decide how much to deposit, add up the total amount you typically make in a month. Then, subtract all your bills from the amount.
Based on what’s left over, decide on how much will go into your checkings and how much you can afford to go into your savings. The amount you put into your savings should be as significant as possible so that you can grow your savings as quickly as possible.
The amount you dedicate each month should also be realistic and enough to make an impact. It may seem difficult to part with this money now, but it is all worth it, trust me.
4. Automate Savings
If you put away money here and there when you feel like it, that needs to change. Depositing money into your savings account needs to become a habit every single time you get paid.
If you think it’s too difficult to remember to deposit money into your savings, schedule a monthly direct deposit from your paycheck or your checking account into your savings account. Direct deposit makes saving money a no-brainer.
Simply decide how much money you want to be deposited into your savings and ask your bank to make automatic transfers every month. This method will grow your account in no time and is an easy way to save money for the future.
Tip. Save your extra income
If you have a really good month financially, don’t spend the extra money, save it! Extra income is an awesome chance to reach your financial goals sooner, but it only works if you use it wisely.
Recommended: 15 Passive Income Ideas to Help You Make Money 24/7
5. Decide your limits
That’s essentially a fancy way to say, budget yourself. In order to ensure you are making your monthly goal of how much you want to save you first have to make sure you have enough money. This usually means cutting back on leisure spending like eating out, entertainment, subscriptions, etc.
If you’re saving for a big purchase, paying down debt, or simpling wanting to break the cycle of living paycheck to paycheck, it’s time to set a monthly budget to monitor your spending. Creating a monthly budget can be a bit challenging at first if you’ve never done it.
An easy way to get started is to list all your bills and expenses that you absolutely must pay each month. This list will include rent/mortgage, phone bill, car payment, groceries, etc.
Next, list everything you typically purchase that is a luxury such as eating out, entertainment, shopping, etc.
Now that you have your lists, estimate how much money you spend per list. Your bills are rather consistent so that number should be easy to come up with. The real budgeting is for the second list of luxury expenses.
If you’ve never limited yourself before, now is the time. Set a dollar amount that you are willing to spend each month and stick to it. That means if you spend your limit in only half the month, it’s time to reevaluate your spending habits while you find free activities to do for the next two weeks.
It’s important to be strict with yourself in the beginning so that you can learn control and discipline. Once you get the hang of it, you’ll see that having a budget is helpful in the long run for spending on things that matter most and will ultimately help you save money for the future.
6. Know the Worth of Your Time
Saving money might not seem exciting, especially since you worked 40 hours a week for your paycheck. Why not just go and spend all your money on partying and shopping?
Well, have you ever taken the time to figure out your worth? Here’s what I mean.
Let’s say you make $15.00 an hour and go out with friends and spend $120.00. That’s 8 hours of work.
Is it worth it?
Not always. If you wanted to buy an item of clothing that costs $45.00, that’s three hours of work.
Is it worth it?
You’re not just going to work to get a paycheck. You are giving up your time. Time is valuable and is something you can’t get back. That’s why you need to know your worth.
If you spend a day’s paycheck within a few hours, chances are you aren’t valuing your time. Instead, if you really want to save money for the future, invest it in something that will make a positive impact on your life. A few drinks with friends and some expensive clothes aren’t worth what you could get from saving that money for your future.
Saving money may not be the most glamorous process, but it is so worth it. Once you know what you are saving for and have a great system going, you’ll see how exciting and easy it is to save money for the future.
Best of luck to you, friends!