This is a guest post from Pauline of InvestmentZen.com
We all have dreams and goals in life. They may be different, but most of them require money. Yes, even that little off-grid house you want to build in the woods. Buying a home, sending your kids to college, or retiring early enough to still enjoy life, are a few of the big goals we set aside money for every month. And $50 a month won’t cut it. That is barely enough to plan for next Christmas.
A dream starts with a plan
If you don’t plan for your goals, they remain dreams. “I want to retire a millionaire” will only become a reality if you work in that direction for many years. You have probably read stories about people who retired decades before everyone else, or took a break off work for a year to travel the world. What did it take for that to happen? A plan.
If you need $12,000 for your wedding or a roof replacement a year from now, you need to save $1,000 per month. Any less, and you will charge your credit card and pay way more in the end for the same thing.
If you want to get fit, you are probably ready to give up junk food, and exercise more regularly, because the temporary treat of cheesy fries takes you away from the long term reward of a healthy and strong body. It is the same when it comes to money. You need to make a few sacrifices to boost your savings and get where you want to go.
When I was saving for a year long trip around the world, I had budgeted for around $50 a day to cover all my costs. Suddenly, spending $50 on a random Friday night to have beers wasn’t so important, because it was enough money to travel for a whole day!
There are likely areas in your life where you can reduce your spending and save some money. The most expensive items on a household budget are generally
- Are you living in a house you can afford? Can you downsize one bedroom? Or at least refinance your mortgage to a cheaper rate? Maybe rent out your place when you go on holiday, or take a tenant in your basement? Look at your utility bills, switch providers if you are paying too much. Turn off the lights when you aren’t in the room and try putting the thermostat a few degrees higher in summer and lower in winter.
- Many families waste a lot of food on a regular basis. Try to meal plan, cook anything that is about to go bad, freeze leftovers for a later meal, and cook more from scratch.
- Do you need two cars? One car? Can you cycle to work, or take the bus? You may take longer but you can exercise for free or read a book on the bus.
- Do you need to pay for cable? Can you go on a family hike instead of an amusement park? Have your friends over instead of eating out?
List down your spending for a month and see where you can reduce. Send the difference directly to savings, or use it to pay off your debt if you are carrying a balance on your card.
Make saving a challenge
Challenges make saving more fun, and can help you grow your net worth. Here are a few ideas:
- If you are saving 3% of your income, try making that 4% next month. And 5% the next month. Until you really, really can’t go higher.
- Save all the $5 bills that end up in your wallet
- Save $1 this week, $2 next week, and so on until you save $52 on week 52. You’ll have over $1,300!
- Save 100% of unexpected money. A windfall from your parents, birthday money, work bonus, tax refund, money you found on the floor,…
Boost your returns
Saving money is great, but if you are getting 1% on your savings that won’t take you far. Investing on the markets can help you get higher returns. Yes, there is some risk involved, but if you are not going to need that money for a few years, you should have time to wait for the markets to bounce back in case of a crisis. After all, they have always recovered.
Open a brokerage account, and try to get the full company match on your contributions if your company offers it. That is free money that will accelerate your efforts. Use other tax deferred or tax free accounts first before you put your money anywhere else. If you don’t know a thing about investing, just stick to index funds with a low fee broker, and send money with each paycheck. That will dollar cost average your investments and you won’t have to worry so much about buying low and selling high. Even professionals don’t beat the market consistently so why spend time studying stocks if there is an easy way around it?
It takes a long time to save enough money to make a big goal a reality. So remember why you are doing it. When you are about to buy the twelfth pair of paints of the season, ask yourself if you really need it. Is that more important than keeping your money for a safe financial future? With inflation, and life expectancy getting longer, you need to save as much as possible. With that in mind, will you remember that purchase 20 years from now? Will it matter? If not, try saving the money instead!