Day 5: Face Your Finances Series
This post is part of the Face Your Finances series. You can achieve financial freedom sooner rather than later. You don’t have to settle for a life of debt, financial overwhelm, and living paycheck to paycheck. Don’t let your current financial situation make financial freedom feel impossible. It’s time to reclaim control and face your finances!
“Do not save what is left after spending, spend what is left after saving.” – Warren Buffett
That is hands down my favorite quote relating to finances because it addresses what so many people get wrong about saving.
Saving money should be a priority, not an afterthought.
Let me even take things a step further and say that saving money should be a top priority, arguably your number one priority. In my opinion, saving is the most important aspect of achieving financial freedom.
Not long after graduating college I was talking with a friend a few years older than me and the topic of finances came up. In the middle of our conversation, she happened to casually mention that she didn’t have a savings account.
I was completely shocked. I naively assumed that everyone not only had a savings account but that they regularly put money into it.
I quickly learned that was NOT the case at all.
I began asking various people, friends, family members, and acquaintances if they had savings accounts. Many of them said they had a savings account with their bank, but they weren’t actively saving money.
And trust me, I get it! Saving money can be difficult because it requires you to put chunks of money into an account to just sit there. However, a penny saved is a penny earned and down the line, those pennies can change your life.
In today’s lesson we are going to talk about how to save money like a pro with these five important categories of savings:
- Why it’s important to save
- How to save money like a pro
- What amount to save
- Emergency funds
- Vacation/fun money funds
Let’s talk about how to save money like a pro!
1. Why it’s important to save
We cannot predict the future. We can make as many plans as we want, but the reality is that we don’t know what could happen 60 seconds from now. Here are some real-life examples of how unpredictable the future is:
- Within the first four months of my marriage to my husband, both our cars broke down within two weeks from each other.
- When I was in high school, my family’s air conditioning broke in the middle of our 105° summer.
- When I was in college, the government withdrew one of my scholarships two weeks before school started causing my bill to spike a few thousand dollars.
- A more serious unpredicted incident was when my husband’s father died unexpectedly when my husband was 20 leaving him financially independent for the first time.
The point is, we cannot predict the future which is why saving money is so vital.
2. How to save money like a pro
The best way to save money is to automate your savings.
If you put away money here and there when you feel like it, that won’t get you anywhere. Depositing money into your savings account needs to become a habit every single time you get paid.
You might be thinking that’s a bit of an overkill, but remember, you want to save money like a pro, not an amateur. Amateurs don’t save from every paycheck. Professionals do.
Therefore, the fastest and most effective way to save money is to consistently put money into a savings account on a regular basis.
If you think it’s too difficult to remember to deposit money into your savings, schedule a monthly direct deposit from your paycheck. Another option is to schedule a monthly deposit from your checking account into your savings account. This form of direct deposit automation takes all the guesswork out of saving money.
To do this, simply decide how much money you want to be deposited into your savings account and ask your bank to set up make automatic transfers every month on the date of your choosing. This method will grow your savings account in no time.
Also, 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.
3. What amount to save
If you want to save money like a pro, the easy answer to how much you should save is to save as much as you possibly can.
The more complicated answer is that the amount you save varies based on your situation. That is why you assessed your debt and bills inventory in the very post in this blog series. If you haven’t read that yet, I recommended that you read it, do the exercise, and then come back to this post. You can read the article here.
We all have monthly required payments that we can’t neglect. If you make $2000 a month and your bills and debt are $1700, it wouldn’t make sense to set a savings goal of $500 because that’s not realistic.
To save money like a pro you have to be realistic.
To figure out how much you should save, look at the budget that you made in the 4th post of this blogging series and come up with a number that you are guaranteed to meet each month. If you haven’t read that post yet, I recommended that you read it, create your budget using the free downloadable template, and then come back to this post. You can read the article here.
From there, set up automatic transfers from your checking account to your savings account on the same day each month.
Remember, “Do not save what is left after spending, spend what is left after saving.” – Warren Buffett
4. Emergency funds
Unfortunately, emergencies are guaranteed to happen when you least expect them.
If you haven’t already done so, get yourself set up with an emergency fund and start putting money into that each month.
Emergency funds are vital. In a way, an emergency fund is a special savings account because it holds money until you need it specifically for an emergency.
A popular rule of thumb is to have at least enough money saved to cover up to 3-6 months of you and your family’s entire living expenses.
Emergency funds are often in the back of people’s minds because it can be difficult to allow so much money to just sit in the bank unused. However, if something happens such as a medical emergency or an important appliance breaks in your home, you won’t have to stress out about where to get the money from to pay for the expenses.
An emergency fund also helps you sleep better at night knowing that if money gets a little tight, there is still money set aside just in case.
So, let’s do a quick recap before moving on. To save money like a pro you need to be consistently putting money into your savings account AND you need to have a separate savings account specifically for emergencies.
5. Vacation/fun money fund
Instead of putting your vacation or your fun outings on a credit card, set up an account to save for those days. When you have money saved in an account for a specific purchase, it’s easier to save because you know where your money is going.
Having a vacation/fun money fund also ensures that you are taking a well-deserved break every year because the money is already there.
When I was planning my wedding, I had a savings account specifically for wedding expenses. I also currently have a specific account for vacation/travel with my husband. Once we have enough money saved to take a few days off, we can travel without the burden of wondering how we will pay for the trip.
To set up a vacation/fun money fund, open a savings account specifically for this purpose. You’ll want to make sure it has the best interest rate possible. It’s totally fine to open this account at a separate bank from your checking account. Just make sure you find a bank that suits all your needs.
It’s officially time for you to save money like a pro!
I’m excited for you to start saving money. I really am passionate about saving money because I’ve seen the good that comes from it. I’ve also seen the negative that can happen when people don’t save. So, get yourself set up and start saving!
Check out all 7 posts from the Face Your Finances Series:
Day 1: How to Do a Financial Inventory With Your Money
Day 2: How to Understand Your Spending in 3 Easy Habits
Day 3: How to Face Your Credit Card Debt in 5 Easy Steps
Day 4: How to Start a Budget You Actually Stick To
Day 5: How to Save Money Like a Pro
Day 6: 17 Way to Increase Your Income
Day 7: How to Take Control of Your Financial Future