Tag: how to

How to Save Slowly: A Beginner’s Guide

If you’re living paycheck to paycheck, the thought of saving might seem laughable. How are you supposed to start a retirement fund when the mere act of checking your bank statement gives you heart palpitations? Believe it or not, you can do it.

Here are a few ways you can start saving slowly, even if you’re at a place where it seems impossible. Some of them are simple, and some of them require a little discipline. Take it slowly, set realistic goals and work your way up. And remember, it’s never too late to start.

Automatic Transfer

This is the simplest way to start saving, because you don’t have to do a thing once the transfer is set up. Every bank allows you to automatically transfer funds from checking to savings each month. Open a savings account if you don’t have one and choose an amount that works for your budget — $25 a month if funds are tight, $100 or more if you have a little financial wiggle room. The best part about it is that once it’s set up, you can forget about it and you’ll feel a little better that you have something put away.

Make it a goal to increase the amount over time. If you’re eventually able to transfer $500 a month, you’ll have $6,000 by the end of the year, and $30,000 after five years. Not bad.

Related: What’s Keeping You From An Online Bank?

Balance Your Budget

If your answer to saving is, “There’s no way,” sit down and make a detailed budget. Break it into categories like: groceries, restaurants, clothes, bills, fitness, or car/transportation. The percentage of your income that goes into each category depends on your paycheck and lifestyle, but you can use the 50/20/30 rule if you’re stumped: No more than 50 percent to essentials (rent, bills), no more than 20 percent for debt, retirement, or savings, and no more than 30 percent goes to the fun stuff: gym or dinners out.

If you have a hard time sticking to budgets, take out cash from the ATM and put it into envelopes marked for each category, instead of winging it with debit and credit cards and telling yourself you’ll do the math later. If your restaurant envelope is empty by June 10 ? no more eating out until July.

Seeing your spending habits on paper (or in an envelope) has a way of kicking you into gear (or freaking you out, if you’re living beyond your means). It will help you figure out whether or not there are things you can cut out, like $50 bar tabs, $100 dinners, or $250 haircuts. Haircuts are important, but there’s definitely someone in your town who can do it just as good, for cheap.

Related Article: Why We Can’t Save

Make Trades

Now that you’ve started saving, it’s time to put that extra money away. But maybe it wasn’t that easy. Maybe there are things you just really don’t want to cut out. Things you’re clinging to, even though you don’t really need them to survive. If that’s the case, you can make some trades. For example, if you’re forking over $80 or $200 a month (at least) for yoga or Pilates or kickboxing, invest in some $9 yoga and Pilates DVDs and do them at home. You can put that extra money into savings and still get your workout fix. Another easy one is expensive dinners. If you’re going out for $50 or $100 dinners two or three nights a week, trade in a few of those dinners every month and cook for your friends. It’s just as fun and way cheaper. When you’re starting slowly, every little bit counts.

Related: 7 Ways To Make Your Home A Sustainable Source of Income

Stay Focused On a Goal

It might seem tough, but if you sit down and set out some five or ten-year goals for yourself, it will make it much easier to make them a reality. If you’re just starting to save, a simple rule of thumb is to put 10 percent of your income toward retirement. So if you’re making $60,000 a year, you should put away $6,000. If loans and debt make that number impossible at first, scale it down to five or even three percent and work your way up each year.

If you have no idea what the future holds, focus your goals on the basics: retirement, housing, and paying off debt. In fact, if debt is what’s holding you back, then focus on that first. Give yourself a 10-year deadline to become debt free, whether that means putting aside five or 10 percent of your income, depending on your situation. Setting a goal will make saving slowly much less intimidating.

Related: What I Wish My Clients Knew When They Were Younger

Give Yourself a Hand

There are great apps and programs out there to help you organize your savings and invest small amounts at a time, like Digit?or?Acorns.

Acorns helps you put away your “spare change” from everyday purchases and takes all the intimidating details out of investing and is intended for saving slowly and incrementally. With Digit, it’s about setting aside small amounts of money over time, track your spending and set aside small amounts for you. If putting away $500 a month seems as realistic as moving to the moon, this is an app for you.

If you’re having trouble getting started, take it one day at a time. Or think of it this way: If you put away $6,000 a year ? that’s little under $17 a day– for 10 years, you’ll have $60,000 set aside.

And imagining $60,000 in your savings account can be a pretty good motivator.

Related: Your $70 Hoodie Actually Costs $3,168

Dina Gachman is the author of Brokenomics: 50 Ways to Live the Dream on a Dime.?

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How To Build an Emergency Fund

Stuff happens.

I don’t think you need me to bring this undeniable fact to your attention. Instead, let’s focus on what happens next. All you can do is keep your composure, deal with the situation at hand, and move on. That’s what “real” adults do (or so I’m told).

I try to remind myself of this all the time. Sometime it works, and sometimes I’m melting down at the airport because I’m sleep deprived, about to miss my flight, and thinking that the TSA security line is really just a personal attack on me and my schedule. #Adulting

“Stuff happens” moments test our nerves and resolve, but they can also come with real financial consequences. These moments are almost always unexpected and require you to take action right away — a missed flight requires a rebooked flight, a trip to the ER ends with a hefty medical bill that needs to be paid within 30 days, and a layoff means figuring out how to pay your rent while you job hunt.

This is where having an emergency fund comes in. This cash cushion can mean the difference between handling a setback with grace or dealing with a financial catastrophe. Without an emergency fund, you may find yourself making big sacrifices, falling back on a credit card, or making a dreaded phone call to family or friends for help. Instead, set some cash aside that can be tapped when shit happens (because it will).

Related Content: Are You Losing Money By Saving?

How much do I really need to save?

Start small. Choose a number you can feasibly reach within 3 months of diligent saving. $500-1,000 is a nice jumping off point for many people but start with a number that works for you. Whatever that number, break it down into a weekly savings goal so it feels manageable. For example, if you aim to save $42 a week, you’ll have $500 by the end of 3 months.

Once you’ve hit that goal, keep saving until you have enough to cover two or three months of your spending. This number is usually enough to cover an unexpected home or auto repair but can also pay the bills if you lose your job. You can always choose to save more if you’d like to be more conservative or if you have a lot of uncertainty in your financial situation (say you’re a freelancer with lumpy income).

Where should I keep it?

Open a separate savings account specifically for your emergency fund dollars. This can be done at your current bank where funds can easily be transferred to your checking account in the event that you need them.

This convenience is great in a pinch, but it can also be tempting to spend. If you feel like you’d be likely to drain the funds, consider opening an account at a separate bank. A transfer from an online bank, may take a couple of days and this small barrier may be just enough to keep you from raiding your funds. These accounts also typically offer higher interest rates than brick and mortar banks, which is a nice bonus.

Where is this savings supposed to come from?

Take a hard look at your spending for the last month by logging into your credit card or bank account online and scanning your transactions. Identify a few areas where you could cut back or cut things out all together. Be specific! If you tend to get coffee 5 days a week while at work, vow to cut this down to three. If you’re still paying for a monthly gym membership you never use, cancel it. Once you know where the emergency savings is coming from, don’t settle for mental accounting. Take the extra step to actually transfer the cash to your new account.

Related Content: Emergency Savings, Is It For Me?

What if I have debt?

Always pay the minimum on your debt each month. This keeps you current, helps you avoid extra fees and builds your credit score. Beyond that, it can be tempting to put any extra cash towards paying down debt, rather than letting it sit in some savings account.

But consider this scenario. You put every last dollar you have towards paying down your student loans that have a 7% interest rate. You’re feeling good until you hit a bump in the road, literally. You need some cash for a car repair and you need to get to work the next day. You don’t have any cash saved so you end up putting the cost of the repair on a credit card with an 18% interest rate. You’ve just traded one type of debt for a much more expensive variety.

If you have high interest rate debt (meaning debt with an interest rate in the double digits), aim to save a minimum emergency fund of $500. Once you have this cushion to cover the smaller “shit happens” moments, use your extra cash to pay more towards your debt above the minimum payment. Once the high interest debt is paid, pick up your saving where you left off.

Planning for the worst isn’t fun but with an emergency fund in place, life will throw curveballs at you, you’ll deal with it and move on. Suddenly, all those shit happens moments won’t feel quite so urgent after all.

Talk about adulting.

Photo by Zhen Hu

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