How to Save Money

One of the best ways to grow wealth is to save money. But most people aren’t sure how to save money. In fact, the ability to save money is crucial to growing wealth.

This seems to be the hardest thing for many people to do. It is very easy to spend everything you make. There are a million ways to justify spending all your savings or not saving at all.

You need to realize that if you don’t learn how to save money, you are destroying your chances of ever growing wealth and you are taking a big risk that you may one day have to declare bankruptcy.

That is the truth. The recent financial meltdown and the subsequent recession should be a wake up call that there is no such thing as a guarantee. Your job and income are not a guarantee. Your house and investments won’t always go up. Social Security cannot guarantee you a good retirement. The only way to protect yourself is to always be a saver. Only by knowing how to save money can you achieve true security.

You must learn to live off less than what you make. That may mean learning to live on a budget or it may mean finding ways to increase your income.

Also, if you have any financial goals, the only way to reach them is to know how to save money.

Conceptualizing How to Save Money

The less money you save, the longer it will take to reach your goals. So if you are not a good saver already, you need to train yourself to think about saving correctly.

Try to think about saving in terms of your goals. Every month you save gets you closer to your goals. But more importantly, every month you don’t save means you’re a month farther away from reaching your goals.

Start thinking about the things you are giving up by not saving. Whenever you are considering spending your savings, think about the opportunity cost. That is, think about the early retirement you are giving up of the new house you won’t be able to buy.

Saving must become a priority in your life if you want to grow wealth. It must be more important than owning a bigger house or a nicer car.

The world is full of people who make lots of income and are broke because they can’t seem to save anything. Only savers grow wealth. The others have some wealth for a short time and then squander it.

Think of saving like a bill and always pay yourself first. Most people look at saving as a luxury that they will do when they have extra money. You will never have extra money. There is no such thing.

You can always buy something else. There is always another bill to pay. But you and your family are the most important people in your lives. So no matter what, always make sure that you pay yourself first.

The money you save is the only money that is really yours. Everything else is gone at the end of the month.

So the first bill that should be paid every month is you. Even if this means running a little debt you should always save money.

Having a little debt and some savings is much better than having no debt and no savings because it gives you options and flexibility. Only by saving money can you still control that money. So don’t let others control your financial life. Become an expert on how to save money.

I have often heard people complain that they make plenty of money to pay their bills but as soon as the car breaks down or a child needs dental work, all their savings goes right out the window.

These people are always frustrated and can’t ever seem to figure out how to save money and grow wealth.

The reality is that these people are living beyond their means. They may not think so because they are able to pay their bills each month but they have not figured in the cost of unforeseen events in their budgeting process and they will never get ahead because of this.

In order to get ahead, they must cut their monthly bills. This may mean paying less rent or owning a smaller home or it may just mean they need to go out to dinner a little less. Maybe they should own a used car instead of a new one.

Anyway you look at it, these people have habits that prevent them from saving. Don’t fall into this trap. Evaluate your budget and always find a way to save.

Techniques on How to Save Money

One of the best ways to save is to have money automatically deducted from your paycheck. One way to do this is by having money automatically moved from your checking account to a savings account each month.

Most companies have some sort of retirement plan that allows you to have money automatically deducted from your paycheck so if retirement is one of your priorities, this is a great feature.

In addition, some companies will even make matching contributions to encourage you to save. That’s free money they give you just for doing the right thing!

Some companies also offer stock saving plans in which you direct a portion of your income to the plan and they sell you the company stock at a discount. Again, this is a great opportunity.

But even if yours company doesn’t offer these plans or even if you are self employed or just don’t want money to go into the company plan, most financial institutions have a way to set up automatic withdrawals from your checking account. This can make it easy for people because they can spend whatever is left each month without having to worry about how to save money each month.

Even if you can’t do it automatically, when you pay your bills each month, make one of those bills your savings. Write a check to your investment account or move some amount to a savings account from checking.

Try hard to put a certain minimum amount away every month even when things are tight.

I will warn you that doing this takes a great deal of discipline and my experience has been that when people try to do this, it works well for a while, but eventually something comes up and the first thing to stop is the saving. This is a mistake. These people don’t understand how to save money. Saving should be the last thing to go, not the first.

Where to Save

Of course, where you save will depend on your priorities.

For example, if you are saving to purchase a house, you generally don’t want to put this money into an annuity or a 401k because you can’t use those vehicles to purchase a house without incurring penalties and taxes.

But if you are saving for retirement, a retirement account may be a good option. If you are saving for a child’s education, you may want to consider a college savings plan like a 529 or a Coverdell Education plan. And if you are saving for health care, a Health Savings Account (HSA) may be a good option.

Otherwise, you can always just open a regular account at the bank or with an investment advisor. I think this is an underutilized method of saving. Too many people over-fund their retirement accounts without building up a significant amount in brokerage or bank accounts.

Brokerage and bank accounts have give you the benefit of flexibility. They give a place to draw from if some extraordinary opportunity comes your way. Many of the tax advantaged accounts have too many restrictions to allow you the ability to take advantage of such opportunities.

How Much Should You Save?

Knowing how much to save is difficult.

If you save $10 per month, you’re going to take a long time to grow wealth, although that’s better than nothing.

If you save 50% of your income each month, you’re going to live a pretty meager lifestyle which no one wants.

The amount you save depends on you. I suggest saving the maximum amount you can stand to save without significantly decreasing your standard of living.

I think a starting point for most people is about 10% of income income. If you can save more, do so. If you can’t save 10%, work on getting to the point where you can. Look for ways to lower your bills and cut costs.

Evaluate your saving habits and, over time look for ways to increase your savings.

If you get a pay raise, put that money into increasing your monthly savings.

If you get a bonus put half or three quarters into savings and only spend a little on yourself.

If you inherit money or win some, make sure to put at least some of it away into savings.

Set specific financial goals within specific time frames and figure out how much you need to save each month to achieve that goal.

Most importantly, get started right away. If you already have some savings, good for you! You’re on the right track.

If you don’t have any savings yet, figure out how you’re going to start saving today. Even if money is short and your bills are too high to borrow, look for some way to save a little money.

Knowing how to save money is a crucial ingredient in growing your wealth.