Is your New Year’s resolution to save more money? Do you want to improve your financial standing and set yourself on the path to independence? You’re not alone: millions of Americans every year decide to make financial goals part of their New Year’s resolutions. Read out new year resolutions to save money.
Most people, though, don’t succeed.
Through a combination of psychology and math, there is a way to make yourself more effective at saving money.
- Have a Purpose
- Have a Goal
- Have a Plan
- Make It Easy
Have a Purpose
Saving money by itself is not a good goal, because it has no purpose or drive behind it. If you just want to save money to save money, but you never have been any good at saving, simply telling yourself that you want to save more is not going to work!
You’re going to need a purpose. This purpose could be in the form of a reward, or a goal purchase. The most common purposes for saving more money are:
- Down payment on a house
- Children’s education
- Home renovations
- Retirement fund
The purpose also needs to have a deep, emotional reason behind it. For example, why get a down payment on a house if you have been happy renting? Maybe it’s because you want to raise your children in a home that you own, and you want to pass it down to them someday.
Once you have a real reason to save, you now need a firm goal.
Have a Goal
Your goal is going to determine whether you succeed or fail.
Set your goal high. REAL high. Then, figure out how much of that goal you can reasonably achieve in a year.
If your goal is to save enough for a down payment on a house, you need to calculate how much you’re going to need. Let’s say an average house in your area is $200,000. You’ll need 20% of that, so you’ll need to save $40,000.
That’s a lot of money, and it’s unlikely that you’ll be able to save that much in a year. How much of it can you reasonably save in a year?
This is where the plan comes in.
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Have a Plan
Your money saving plan will consist primarily of two things: cutting expenses, and increasing your income.
There are many ways to increase your income, but only a few ways to cut your expenses. Some ways of cutting expenses are simply unrealistic. You won’t, for example, move out of your house into an apartment just because you want to save a few hundred dollars a month.
To cut expenses, you’ll need to take inventory of your spending. This can be embarrassing, and can sometimes reveal patterns that you don’t like. Take your credit card statements, and money transfers, from the last year and organize your spending into categories:
Average it out over the year and you have an estimate of how much you spend in each category. Now: is there anything that you don’t use much, or get much joy out of? For example, you might love your Amazon Prime subscription but you don’t use Spotify. Or, you might not go to the gym despite paying $50 a month for a membership.
Maybe you’re getting parking tickets more often than you care to admit, and eliminating those will save you hundreds of dollars over the year.
These are the things you can cut out completely. Now ask: what can you spend less money on?
Then, you have to decide: what fun things can I not live without? It’s not fair to you, your family, or your mental health to decide to never eat out or buy Starbucks coffee if these things help make life easier. But, maybe you’re going to see movies often and you haven’t enjoyed many of them.
Make It Easy
Pinching pennies doesn’t work for most families because it’s a lot of mental effort. There’s no point in spending that time doing so!
Make as many things automated as possible. Saving should be automated by using online banking tools to transfer money out of your checking accounts into your savings every month. Or by setting up an automated transfer at a bank teller, if you still don’t use online banking.
Pay your credit card bills on time and never accrue a late fee again by using automatic payments.
Use a tool such as Intuit’s Mint to track your spending in each of your important categories.
- Saving money doesn’t need to be hard, complicated, or require much discipline as long as you have a purpose, goal, and a plan.
- Making saving easy is the best way to keep yourself on track to meet your New Year’s resolutions.