Only 39% of Americans could cover an emergency expense of $1,000.
This figure really says something about the state of our finances. However, although saving may feel overwhelming, it’s never too late.
Starting off small can help lead the way to bigger changes so that over time, saving becomes easy and your money habits improve.
But, if you’re not sure where to begin, check out this list. Start implementing the basics and you may be surprised by how quickly your savings account can grow!
Top 10 Smart Money Habits to Start Practicing Today
Track Your Spending
How will you know how much you can save if you don’t know how much you need to spend?
You can only truly work this out by tracking your spending over the month. There are many apps which can help you do this. Or, you may prefer to write everything you spend down on paper.
Begin by spending as normal for one month. This will give you an overview of how much you spend on: debt, food, eating or drinking out, rent, bills, medical care and more.
When you’ve worked this out, it’s time to sit down and map out a budget or daily budget planner.
Make a Budget
Although this sounds rather boring, it can be the best way to ensure you know where your money is going and how much you could be saving.
A great way to create a budget is by using a simple Excel spreadsheet. The Financial Diet has some great tips to help.
When making a budget, you should be attempting to cut down on unnecessary spending. This doesn’t mean you need to forgo everything fun in your life.
Work out how much you want to save at the end of each month and then figure out how you can live on the rest.
You’ll need to be realistic with your budget and avoid being too restrictive so that you don’t splurge.
Once your budget is complete, have it in sight somewhere so you’re reminded to update it regularly.
Pay Yourself First
When your wages finally hit your bank account, there’s a temptation to go on a spending spree.
But, now that your budget is ready to go, you know exactly how much money you need for the month.
Instead of spending everything, make sure you have just the right amount of money needed for that month and then, put the rest into a savings account.
If you’re worried about spending it, put the money into a savings account which is difficult for you to access (i.e. not one you can transfer money from via your phone!)
The money in your checking account should be exactly how much you need for bills and for spending for the rest of the month.
Ideally, you would pay for your largest expenses just a few days after you have been paid so that money doesn’t even feel like yours.
Take Out Your Spending Money in Cash
Once you’ve been paid and your big expenses have gone out of your account (such as rent and bills), take out the rest as cash.
Being able to visualize exactly how much money you have can help you make wiser spending decisions.
Of course, don’t carry hundreds around with you at a time. Make sure you only ever take with you how much you can spend and maybe a little extra for an emergency.
If you find that you regularly spend too much on a night out with friends, leave your cards behind and just take cash. You may be surprised how much you save.
Have Multiple Saving Accounts
Having just one savings account and multiple credit and debit cards can make saving difficult.
However, by having multiple savings accounts (and fewer credit cards) you can help yourself save money.
A rule to go by is to save into three pots. You should have your checking account with just the right amount of money for the month, if your budget is correct.
Emergency Savings Account
Next, you should have your emergency savings account. This pot should have money which is accessible but not tempting.
This account holds the money you’ll spend on medical bills, car breakdowns, and other expensive emergencies.
As well as saving into your emergency pot (which you should aim to have a few thousand in), you should also save into a longer-term savings account.
Longer Term Savings Account – A Non-Emergency Fund
For this pot, you may be saving for the next five to twenty years. This savings account is where the money for slightly more expected things will come from.
For example, are you saving for a house, children or holidays? Essentially, this pot is slightly less necessary than your emergency fund but necessary nonetheless.
Of course, what you spend your money on is completely up to you. But the third account is one which you want to aim to leave for as long as possible.
With this account, you may want to bolster your pension or put money into an investment account for retirement.
However, for this pot, you may want to speak to a financial advisor so you can ensure you’re putting your money in the right place.
(Remember, investments are risky and you may want to simply hold your money in a saving account to ensure you’re not going to lose it all.)
Speak to a Financial Advisor
Speaking of financial advisors, it’s a well-known fact that you sometimes need to spend money to make money.
If you’re worried about how you’ll put your kids through college, how you’ll pay off medical bills or how you’ll save for retirement, it may feel nonsensical to spend money.
But, by finding an unbiased financial advisor who you’ve researched and feel confident about, you could help yourself save money.
Discover more about financial advisors and you’ll find ways to help you save which you may never have thought possible.
Learn to Be Frugal and Avoid Bad Money Habits
After you’ve tracked your spending, created a budget, and spoken to a financial advisor, you should begin working on any bad money habits.
Being frugal means finding alternatives for your habits. It’s essentially about finding ingenious ways of saving while still enjoying your life.
For example, learning to cook delicious meals instead of eating out. Another very typical example we’re always given is to reduce our take-out coffee consumption.
If you can’t do without coffee, invest in the right equipment to make your own caffeine fix and don’t waste cash on take-out.
Buy an Aeropress, a grinder and your coffee beans in bulk then learn how to make a perfect cup of Joe. Carry your coffee to work in a reusable – your wallet and the planet will thank you.
But, before purchasing something, think: can I find this at a thrift shop? Check your cheapest options first! If not, invest in high quality so it lasts.
Remember, recycle, reuse and reduce! Again, the planet will also thank you for being less wasteful.
Regularly Overview Your Finances
Once you’ve got your budget in order and feel confident that you’re saving regularly, review your progress!
By doing this, you’ll know whether you’re on track and whether you’re saving as much as you’d like. Set a date every month when you look over your receipts, bank accounts and saving progress.
By doing this, you’ll also be able to spot trends over time and can adjust your budget accordingly.
Frugal Exhaustion Can be Overcome
So, you’ve been saving money, reducing your monthly expenses and building up your savings account. Go you!
But, before long you might notice that those expensive purchases are becoming slightly more enticing… What do you do?
This is known as exhaustion and is a saving point which you need to break through. At this point, many people give up and splurge.
However, to avoid frugal exhaustion, you should plan for it. For example, keep a list of things you really want.
Rather than buying them straight away, look out for sales and over time figure out whether you really want them.
If this doesn’t work to fight the frugal exhaustion, plan for a splurge. If you’ve hit your funding goals or are well on track, have two months where you allow yourself to keep $100 back from your savings account.
Put this money somewhere else and by the third month, you’ll have a good amount of money to splurge.
Think of this as a financial cheat day. As with dieting, you need to remind yourself that spending money on wasteful items isn’t necessary.
Negotiate a Higher Pay
Finally, this is a necessary piece of advice which we could all do with hearing more often. One of the best ways to ensure you can save is to earn money.
If you’ve been working the same job for a long time, then speak up and ask for a pay rise. If your outgoings are higher, then ask your boss for a raise.
Get into the habit of asking for a pay rise regularly (or when you feel it is necessary). A good rule of thumb is to ask once a year. Of course, this isn’t always viable but you may find that if you’re doing well in your job, your boss won’t be offended you asked but will consider it.
If the answer is yes, then make sure that excess money goes straight into your savings!
Good Money Habits Can be Hard But it’s Worth it
After you’ve implemented all of these tips, you’ll be finding that your bank balance is growing, your debt is reducing and you’re feeling less of a financial pinch.
Of course, you need to work at being a good saver. But, it’s worth it to ensure financial security for you and your family.
If you’re already a master saver but need more ideas for how to deal with your money habits and finances, check out our money archive.