In the modern capitalist world, trying to save money is a Herculean task that seems almost impossible to accomplish. Reports show that nearly 40% of Americans with annual income over $100,000 live paycheck-to-paycheck. Among them, 12% struggle to pay their bills and afford basic amenities.
Such reports have destroyed the belief that low-income families are the only ones suffering from this situation. In fact, a report from the US Federal Reserve observes, 45% of those over 60 are confident their savings are on track. The rest, on the other hand, have made no provision.
Why Should You Start Saving Early?
Due to poor financial literacy, most individuals do not see the importance of saving early. According to data from the Bureau of Labor Statistics, the average earnings of an American 25 years and older is $1068/week. This would translate to approximately $4300 every month.
According to the latest report, an individual spends $5,253 per month, proving that most Americans live by the monthly paycheck and are barely setting any money aside for future savings.
However, the benefits of budgeting and saving from your 20s are too many to count. Most individuals live a carefree life and squander away their earnings without a second thought. But once the medical bills start to increase as soon as you enter your late 50s, you’ll end up regretting your lavish lifestyle.
So, let’s understand why you should be bothered about budgeting and saving as soon as you start earning so you won’t end up in a tight spot in the future:
1. Can save small amounts at a time
You don’t have to keep aside half of your salary every month when you start saving early. Instead, you can save up small amounts, which will eventually add up to a considerable sum of money in the future.
2. Helps you face any emergencies
There’s no guarantee that the economy won’t come crashing down at any point in the future. Natural disasters, global pandemics, and all kinds of unexpected situations might crop up without warning. In such moments, you’ll be thankful you’ve saved up enough to tide you through the rough times.
3. Make your grand retirement plans a success
After working almost your entire life, you’d want to take it easy after retiring. However, just spending your remaining years in one corner of an old-age home isn’t the dream. Instead, when you start to save up early, you’ll finally be able to afford that world tour you’ve been dreaming of since forever.
Sounds tempting? Well, even though everyone wishes they could save up from an early age, the reality isn’t as easy as it seems.
Why Can’t People Save Money?
Sometimes, you’d hear your parent brag about how they were able to buy a house within a few years of bagging a job. But don’t beat yourself up over the comparison. Alissa Quart, executive director of the Economic Hardship Reporting Project, believes that the system is responsible for people’s economic struggles every day.
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According to her, middle-class life is now 30% more expensive than it was almost a decade ago, with the cost of necessities like education, child-care, medicine and housing skyrocketing unashamedly. Unfortunately, salaries have stagnated to the point where you’ll be lucky enough to meet your basic necessities every month.
Other than the horrible economic conditions, people generally struggle to save money because of:
1. Excess spending on material goods
The modern society fixated on social media is partly responsible for the rising expenses to maintain posh living standards. As a result, you might find yourself spending more on fancy clothes, shoes, cars, and other material goods, even if it means living on cup noodles for the entire month.
2. An impulsive urge to purchase
As more and more people feel stressed and burnt out from their daily lives, they develop a habit of impulse buying whatever they fancy for a few moments of happiness. Psychologists have studied this phenomenon and consider impulse buying a sign of depression.
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3. The inherent need to belong
Your friend’s circle might have jobs that pay a handsome salary that can excuse their lavish spendings and daily night outs. But even if you are unable to keep up with them, the fear of being left out can prevent you from checking on your savings.
These are just a few reasons that prevent you from meeting your savings goals every month. However, there’s no need to lose hope yet! Even if it seems impossible, it’s never too late to start budgeting and saving.
How Can You Start Your Budgeting And Saving Journey?
When your paycheck disappears as soon as it enters your account, you KNOW it’s time to start taking savings more seriously. After all, there’s a limit to the number of cup noodles and cheap bread you can buy to survive. So, let’s dive right into some tips and tricks that can ease you into making savings a monthly habit.
1. Apply the 70/20/10 budgeting rule
Budgeting can be pretty confusing if you’re unsure or don’t have a plan about how you’d like to proceed with segregating your income. While you can’t save 100% of what you make, putting aside only 5% won’t help you in the long run. In such moments of confusion, you can apply the 70/20/10 budgeting rule where 70% of your paycheck goes to paying bills and other essentials, 20% for savings and investing, and the rest 10% to repay debts and loans.
This budgeting strategy maximizes your saving ability while ensuring you don’t have to live like a miser.
2. Track your expenditures
Once you have settled on your budget, you need to identify the excess expenditures to cut them off successfully. For this, you should keep track of everything you spend your money on – bills, food, groceries, parties, essential items, etc.
If you are already at your budget limit in any month, you could cancel that Saturday night out or enjoy a staycation instead of taking an expensive trip. Do you really need that new black dress that’s trending everywhere when your entire wardrobe has too many new clothes you haven’t worn in a year? Force yourself to prioritize your expenditure to cut down on such excess spending.
3. Be smart about your debt
Not all debts are bad debts, and the sooner you realize this, the quicker you’ll be able to figure out how to manage your debts correctly. You’ll have to pay off all kinds of debts throughout your life, such as student loans, car loans, credit card debts, mortgage payments, etc. However, when you understand the basics of your debt, you can use your credit wisely to maintain a good credit score.
Furthermore, if you transfer your credit card balances to a card with 0% APR, you can reduce the amount of money you have to spend as interest when paying off your loans. This way, your debt becomes less expensive.
4. Live smartly, save more
Ask yourself – do you have to run to the store five times a week? Catch a cab when you could have jogged your way to the office? The secret to saving money lies in how you live. So, plan out your menu for the entire week and go for one big grocery shopping trip a week.
Instead of taking a cab, wake up early and take the public commute. If possible, jog or cycle your work to work. This is both environmentally positive and a healthy alternative.
5. Use a budgeting app
In the technologically advanced 21st century, there’s no need to spend hours making your budget on pen and paper. Instead, there are many free online apps for budgeting and saving that you can check out, such as:
- You Need A Budget
- Simplify by Quicken
- Personal Capital
Summing it up,
Creating a budget and sticking to it is like exercising – you’ll hate it initially and probably give up a million times. But once you get used to the practice, it becomes a piece of cake. The secret is to maintain a proper balance in your savings and expenditure. As long as you follow the tips in this blog, you’ll be able to save up enough to live a comfortable life after retirement and counter any emergency need.
Henrietta Jones is a professional academic mentor at MyAssignmenthelp.com. She has completed her graduation from the US and post-graduation from a reputed university in the UK. In the following year, Jones plans to continue her PhD in the States.