Saving money is like taking a trip in your car. Your destination could change, you could need emergency repairs, and to get where you’re going, you might need a road map.
While the concept of saving money seems simple enough – spend less than you earn – the actual practice of saving can be difficult. In fact, the 2018 National Financial Capability Study commissioned by the FINRA Investor Education Foundation, found that, in South Carolina, 17% of individuals reported that they had spent more than their income over the past year, 31% had medical bills that were past due and 49% lacked a rainy day fund.
But no matter your age or stage of life, it’s never too late to start smart saving habits. So, how do you go about it? And how do you stay on track to reach your goals?
1. Set a budget. It’s easy enough to set a savings goal, but it’s important to have a plan for how you’ll achieve it. After all, you wouldn’t start a road trip without first mapping it out. Once you’ve set your goal, you’ll need to map out a budget.
Sticking to your budget is key to saving your money and spending it wisely. You can find extra money to save only by either spending less or earning more. Building a budget can help you track your spending and identify unnecessary expenses that can help you cut costs.
2. Pay yourself first. If you struggle to find ways to save more money, prioritize paying yourself first. Approach paying money into your savings or investment accounts the same way you approach paying a bill – except treat it like it’s the most important “bill” you pay.
This strategy turns saving money from something you hope to do into something you must do, which in turn, will help you build substantial savings over time. One of the easiest ways to make this a habit is by making it automatic, so consider setting up automatic deposits through your employer, or reoccurring account transfers through your financial institution.
If you’re one of the many Americans carrying debt, don’t be discouraged from committing to saving, because paying down your debt is saving. When you reduce any outstanding debt by paying it on time, you’re maintaining your credit score and saving yourself extra fees and interest you’d owe later, saving you money in the long-term.
3. Build an emergency fund. Emergencies come in all shapes and sizes – a flat tire, an unexpected trip to the hospital, maybe even losing your job. Unexpected expenses will happen whether you’re prepared or not, which is why it’s important to build an emergency fund.
With an emergency fund, you’ll be better prepared to handle any unexpected costs that might arise, and you’ll have peace of mind knowing you can handle an emergency expense. While the target amount you should save for emergencies varies from person to person, a good place to start is $500.
While there’s no one-size-fits-all solution when it comes to building wealth, these three basic principles can act as a road map on your savings journey. While the road to reaching your goals won’t always be smooth, you’ll now have a strong financial foundation that will drive you to your final destination: Success.
Curtis Loftis is the South Carolina state treasurer.