Saving money has always been a challenging prospect. However, in 2021, there are more obstacles to creating long-term savings than there have been in the past. Disruptions in the labor market affected millions of people over the last year. Catastrophic weather events, including wildfires and snowstorms, have sapped savings all over the U.S. However, that doesn’t mean savings are an out-of-reach luxury.
You may be able to start building a nest egg for yourself by following a simple five-step process that’s been updated for the challenges of modern life.
- Step 1: Take advantage of new technology to track your income and expenses
- Step 2: Create a budget to control your impulse spending
- Step 3: Consolidate your subscriptions to free up money
- Step 4: Prioritize paying off debts
- Step 5: Direct the money used for closed debts toward your savings accounts
Below, we’ll explore each of these steps and cover how you can apply them in your day-to-day budgeting. Let’s start by looking at how you can take advantage of the latest technology.
Step 1: Take advantage of new technology to track your income and expenses
Keeping track of your expenses no longer requires paper records or accounting knowledge. You can now manage your money with apps on your phone. Over the last few years, many apps have achieved high ratings among users:
Test out different apps to find the one that works best for you. They share many special features, including allowing you to scan receipts to input spending and credit score tracking. Once you’ve started tracking your spending, you need to review it and decide what you can cut. Your next step is to create a budget that will allow you to structure your spending and control impulse purchases.
Step 2: Create a budget to control your impulse spending
Creating a budget is an essential step to creating long-term savings. It helps you confront the reality of your spending and plan where your savings will come from. Start by isolating the expenses that you cannot avoid. For example, most people cannot avoid paying rent to cover their living space. You may also require a car to get to your job and health insurance.
Add up all of your necessary expenses and subtract that number from your total income. If the resulting figure is negative, you may have to take drastic steps like moving to a cheaper home or selling your car for a more affordable model. If the resulting figure is positive, you now know how much you have to create savings. One of the easiest areas to cut costs will be subscription services.
Step 3: Consolidate your subscriptions to free up money
Most people spend far more on subscriptions than they did in the past. Controlling this area of spending is one of the easiest ways to free up cash. That gives you more to spend on more important parts of your budget. Most subscriptions include:
- Movie or television services like Netflix
- E-commerce services like Amazon Prime
- Premium content services for podcasts and streaming channels
- Product-a-month clubs such as wine
- Loot boxes or other lifestyle subscriptions
These services start off as inexpensive for what they offer, but they can quickly accumulate to the point where they can cost you hundreds of dollars per month. You can save a significant amount by getting them under control.
Determine the maximum amount that you are willing to spend on subscriptions every month, and proceed to cut all of your least favorite choices until you’ve reached that number. Make sure you review your bank and credit card statements for subscription services, as you may have forgotten about some of them. Once you’ve finished, you should have a small amount of money freed up for other purposes. The best destination for that extra cash is your current debts.
Step 4: Prioritize paying off debts
Debt can be a severe burden, and it will eat up money that you can spend on saving until it is resolved. You should prioritize paying off small debts even before you begin to work on your savings. As long as debts are active, they will continue generating interest. If they aren’t closed, you may end up spending thousands more than they were originally worth to you. As an added bonus, paying off your smaller debts may improve your credit score. If you have significant debts, improving your credit score may make you eligible for consolidating your debts under a lower interest rate.
Step 5: Direct the money you’ve freed up toward your savings accounts
When you cut your expenses and close your debts, you’ll end up with fewer monthly expenses. You can use the share that you’ve subtracted from your expenses as the basis for your new savings plan.Set up a separate saving account so that you won’t be tempted to dip into your savings for everyday spending. Over time, your savings will grow, and you’ll discover new possibilities.
Maintain your savings habits
Now you know how you can develop a savings plan from the beginning. You need to track your expenses, build a budget to manage them, control your subscriptions, and pay off debts first. After that, you can direct all the money you save to a long-term savings plan. Organizing a savings plan is often a simple process, but the hardest part is keeping it going. Remember, any practice becomes easier with habit. As long as you keep saving and seeing the results, it will become easy and rewarding.