The Do’s and Don’ts of Saving Money
We talk a lot about stockpiling various items for an emergency. Such as survival food, water and other supplies.
There's something else we should all stockpile – money. This is a good idea anytime. It’s especially important when a pandemic is negatively affecting the economy.
But saving money is much easier said than done. Maybe we're not spending as much money at restaurants as we did before the coronavirus outbreak. But many of us are seeing higher grocery bills.
Today I want to discuss some of the "do's" and "don’ts" of saving money. Hopefully some of these tips will come in handy as you deal with all the uncertainties.
Save for the future you
Saundra Davis is the founder and executive director of Sage Financial Solutions. It's a California nonprofit offering financial coach training and services. Here's what she says.
"Every time you put some (money) away, you're looking out for your future self." And you will always be glad later you did.
Americans have been taught about wise spending and consistent saving for centuries. The third U.S. president, Thomas Jefferson, once said, "Never spend your money before you have earned it."
More recently, financial guru Dave Ramsey said this. "You must gain control over your money or the lack of it will forever control you."
The first "do" I want to mention is to reduce your costs. The amount of money you spend is just as important as the amount of money you earn.
Cutting down on what you spend is just like earning more. Take a close look at everything you spend money on. Then determine whether they are wants or needs.
Once you've decided what your needs are, prioritize them. That way you won’t spend money on a lesser need while ignoring a greater one.
Among your top needs will be food, mortgage or rent, and utilities. Very important – but perhaps not as urgent – is paying down debt. Eliminating or delaying your wants will help you reduce spending.
Different ways to save
Another "do" is putting a certain percentage of every payment you receive into a savings account.
A 401k is a great way to do this. Especially if your employer matches a percentage of your contribution. You can also start an individual retirement account.
If you’re retired, try to put a percentage of your Social Security check into savings. The longer you’re willing to leave that money alone, the higher your interest rate.
Slowly build up an emergency fund. Your goal should be to have three to six months’ worth of expenses saved. Just in case your income flow slows or stops temporarily.
Ask for help
A third "do" is to reach out for help if you need it. We've all been in financial straits at one time or another. It's nothing to be ashamed of.
The pandemic has hurt many people financially. Mortgage, utility and credit card companies understand this.
Many of them are willing to work with you until your income increases. But you need to take that first step by contacting them.
The worst thing you can do is ignore your bills and debts. By letting them know you have an issue, you increase your chances they will temporarily reduce what you owe each month.
Consider money apps
The last "do" is a suggestion to utilize one or more apps for your money management.
Some of these apps pay you for shopping. Others help you manage your money.
One of the better known apps is called Mint. It allows you to manage your money from all your accounts. After you set it up, all your transactions are recorded and categorized for you.
Mint can even create a budget for you. Or make note of your spending patterns. If you use an iPad, it can generate a graph to show you a visual representation of your cash flow.
Be prudent with withdrawals
And now for some "don'ts." The first one I want to mention is don't go to the well too often.
By that I mean dipping into your savings. Your emergency fund is for an emergency. That’s what it's there for. But make sure it's an actual emergency before you start depleting that account.
If you need to access some of those funds, try to remove the minimum amount necessary to take care of your emergency. And have a specific plan for spending that money.
Make sure your emergency fund withdrawal is going to a need, not a want. In addition to reducing that fund, you'll deny yourself the interest you would have earned on that amount.
Focus on your budget
The next "don't" is don't ignore your budget. I'm hoping you have set up a realistic budget. One that enables you to pay your bills and save a little.
Try to stick with this budget. Spending more than you planned in one category is going to happen. But offset it by spending less in another.
Every budget should have a miscellaneous category. Because in most months, something will happen you weren't prepared for.
One month it'll be a broken appliance. The next month it will be a car problem. The following month it will be an adult child or grandchild needing money.
Limit credit purchases
Whatever else you do or don't do when it comes to saving money, don't live off your credit.
Unless you pay off the full balance of your credit cards each month, you'll be throwing away money. Not to mention lowering your credit score.
A new couch might seem like a bargain at $750. But if you purchase it with a credit card, you may take several months to pay it off. Which means you might end up spending $1,000 for it.
And that's a price you would not have agreed to when you made the purchase. Everything is more expensive when it’s bought on credit.
It's a team effort
The last "don't" is don't try to do it alone. If you have a spouse, significant other or roommate you share expenses with, you need to get on the same page.
Spending wisely and saving consistently are challenging enough. You don't need your efforts undermined by someone else.
If you lead the charge on this, discuss it first. Be open to the other person's opinions and suggestions.
Once you've agreed on a strategy, hold the other person accountable. And recommend they do the same with you.
At the end of the day, saving money is all about starting new habits and sticking with them. You can create habits out of any or all of the "do's" and "don'ts" listed above. It's not easy – it takes a concentrated effort – but it's well worth it.