Are you overwhelmed by the state of your bank account? Do you feel like you should be saving money, but just can’t figure out how to get started? Every time you get a couple of dollars saved, do you seem to spend them just as fast?
According to Bankrate, the average American has $8,863 in savings. Whether you fall above or below that, it's important to know that saving money is completely possible. You can take control of your finances and your life. Saving money is crucial to building wealth and eventually living a long, financially stable retirement. This article will cover 5 reasons why saving money is important as well as 7 quick tips for getting started with saving your money.
Why Saving Money is Important
Saving money helps you live your best life. The way you save (and spend) your money should align closely with your values. There are many reasons why saving money is important – but the top 5 reasons are that it helps you stress less about money, it can improve your health, it helps you make better decisions, saving allows you to do what you love, and it also helps you set a good example for your children.
Stress Less About Money
Did you know that 60% of people in the United States don’t have $400 to cover an emergency? A lot of emergencies pop up – from unexpected car repairs, increases in utility bills, stolen bank information, family emergencies requiring travel, unexpected hospitalizations, and much more. While money can’t prevent emergencies from happening, they can help you feel less stressed when they do.
Improve Your Health
Money can’t buy happiness – but it can improve your mental health. The truth is that being broke and suffering financially can take a huge toll on your mental wellbeing. Your mental wellness is directly related to your physical health. By saving money and making efforts towards becoming more financially healthy, you’ll also make huge positive strides regarding your physical and mental health as well.
Make Better Decisions
Having a savings account probably isn’t going to prevent you from drinking so much with your friends this weekend that you get a hangover – but it will help you make better financial decisions. Let’s look at an example. What would you do if your car broke down today? If you don’t have any money saved, you’d probably choose to borrow money from a friend, put it on a credit card, or be without your car. You might also consider a paycheck advance, which charges a LOT of interest. None of those options are good for your financial health.
It is stressful to owe money to your friends and owing tons to credit cards is also stressful. You probably can’t (or don’t want to) go too long without your car, even if your city has decent public transportation options.
A paycheck advance is expensive, and too often results in being dependent on advances to get by – because you don’t have enough money to pay off the advance AND pay your current bills, so you just end up having to take another advance. It becomes a vicious cycle that is very hard to break free from.
Instead of taking those routes, if you had money in savings that you could use to cover the car repairs, you could simply pay for them yourself, and then replenish your savings account over time. This would save you a lot of stress.
Do What You Love
Having money in savings also allows you to do what you love. It allows you to spend your money on things that make you happy.
Have you ever been invited on a trip at the last minute, only to have to decline because you don’t have the money to cover it? You probably spent the entire time watching your friend’s social media accounts with envy. Savings accounts allow you to spend money on what you want, when you want.
But even if you don’t love traveling, you can still save up to pay for your passions when they arise. Maybe you love gardening and want to invest in some higher-quality flowers for next spring when they go on sale at the end of season. Without money that you’ve saved, you may not be able to afford that kind of investment when the time comes. However, saving up for a few months beforehand will give you the cash you need to pay for the flowers on time.
Whether you want to save up for a trip, expensive items, adoption, or a wedding – you can use the money you’ve saved to buy things that matter the most to you.
Set a Good Example
For all of the reasons listed, as well as the tons of other reasons it is good to save money, you probably want your children to learn to save money too. Even if you aren’t a parent, by saving money, you can set a good example for your nieces and nephews, or your friends and family. Like we said at the beginning of this article – more than half of folks do not have $400 to cover an emergency. By not allowing the unexpected to blindside you, you can set an example for those around you to follow.
7 Quick Tips to Help You Start Saving Money
Saving money sounds easy, right? You just spend less, and throw the excess in a savings account, and call it a day.
However, most people struggle to save money for one reason or another. We’re going to walk you through 7 tips to help you start saving money right away so that you can be financially healthier and hit your financial goals.
Open a Savings Account
If you don’t already have a savings account, now is the time to start one. It is significantly harder to “save” money that you leave in your checking account. It is imperative for you to stash it in a completely separate account.
The reason another account is helpful is that it allows you to set a very clear intention with your money. People who say, “oh, I’ll save whatever money is leftover…” will probably never have any money left over.
Once you have a savings account – you can get started. Sometimes the hardest step is just getting started – so as you open your account, put some money in it and do not touch it. Once you have a little saved, it often becomes easier to build upon that. The goal is to create a habit of saving instead of a habit of spending.
Name Your Savings Account
Another quick tip is to name your savings account. Most banks and many other financial institutions will allow you to add a name or nickname to your account. You can name your account anything that might help motivate you. Perhaps you could name it “travel” if you’re saving up for travel expenses, or something more humorous like “don’t touch unless you’re dying” if that’s more your style.
Regardless of whether you officially name your account or not, you should set an intention for the money. It is much easier to save money when you’ve labeled it for a specific purpose – like “hobbies” – rather than just putting it back to “save.” Keep in mind though that this stash of money is primarily a tool to help you out in a financial emergency. You don’t want to drain your entire bucket of savings for a vacation, for example.
Some people find it easier to actually create several smaller accounts and divide up their savings between those. If you like that idea better, it may be wiser to use an app instead of an official bank – as banks may have limits on the number of accounts you can have, or they may charge you a fee for each account.
Create a Budget or a Financial Plan
If you feel like you never have enough money to save, or you aren’t sure how much money you have available for saving, creating a budget or a financial plan can help you. There are many budgeting methods you can try including:
If you aren’t sure which budget sounds right to you, read the Ultimate Guide to Making a Budget. This resource will give you an overview of each budget type and also provides guidance for beginning a budget. The Ultimate Guide to Making a Budget also includes app recommendations, if you’d like to set up your budget in a more tech-savvy way.
Cut Your Expenses
If after making a budget, you feel like you don’t have enough money left over to save – it might be time to cut your expenses. While you might not be able to move to a cheaper home or reduce your car payment immediately, you might be able to cut back on your variable expenses – like groceries, for example.
You can also check with alternative cable and cell phone providers, to see if cheaper options exist. Put any savings that you create or find into your savings account. You were already “spending” it – so you shouldn’t notice it if you’re now putting it in savings instead.
Grab a Side Gig
So while working a second job may not be feasible, it might be critical to your financial health if you truly couldn’t find anywhere to cut expenses from and you’ve found yourself spending more money than you make every month.
Your side gig doesn’t have to be waiting tables or working retail on the weekends though. Consider turning your passion into a part-time job. Do you love fitness classes? Consider teaching one. Are you a math wizard or history buff? Consider tutoring high school students in the subject. Are you crafty? Consider an Etsy store.
Save it Automatically
If after creating your budget, you have an idea of how much you can save each pay period, have it transferred automatically.
Think of it this way. Does your health insurance ever not get paid? No – because your employer likely takes it out before your check ever hits your bank account.
The same concept can apply to the money you want to save. Simply set up an automated transfer for each of your paydays with the appropriate amount. Worst case scenario, if you end up needing some of that money, you can always transfer it back to your checking account. Be mindful of any fees that could accrue from too many savings withdrawals.
Follow Through and Track Your Progress
Once you start saving money, it is important to continue to do it and keep track of your progress. Some people find it helpful to set small rewards for when they achieve certain savings milestones. You obviously don’t want these rewards to wipe out the progress you’ve made in regard to saving, but it can be a great way to keep you motivated.
Another great way to keep track of your progress and stick to your savings plan is to keep a written log of how much money is in your savings account, what you’re saving towards, and how it makes you feel. If you’ve been particularly stressed about money in the past, having this log showing how much more relieved you feel can go a long way when it comes to keeping you on track.
Think of saving like dieting. Diets don’t work very well if we focus on all of the things we can’t have. But, if you change your mindset to one that focuses on all of the positive things that are coming from your improved diet – like your increased energy, your improved mood, and your heightened focus – you will feel more fulfilled and you’re more likely to stick to it. With savings, you have to focus on what that money allows you to do or gives you in the future – instead of focusing on that extra extravagance that you aren’t purchasing right away.
Eventually – something will come along and you’ll need to use a big portion of your savings (if not all of it.) This can also be a discouraging time, especially if you haven’t been saving money for very long. Simply remind yourself of how much better you were able to handle the financial situation by having the money saved – and that should another situation come up in the future, you need to be prepared.
Saving money isn’t easy – that’s why most people don’t do it or don’t do enough of it. Everyone knows that saving money is important – but it can be a challenge because it requires discipline and sacrifice.
On your savings journey, you probably won’t be perfect. However, even saving a little here and there can go a long way in helping you head off or reduce the impact of any financial emergencies in the future. Hopefully these 7 quick tips gave you a good place to start saving so that you can stress less about money, improve your overall health, make better financial decisions, do what you love, and set a good example for those in your life.
About the Author
Melinda Pettijohn is an expert personal financial writer with more than 10 years of experience in the industry. She covers topics ranging from budgeting, additional ways to make money, credit cards, managing debt, paying for college, and more. As a mom of three kids, she especially loves sharing insights on how to make the most of your money while raising a family.