How to Save Money

Learning how to save money is an important preparation for your financial future. While saving money may not seem to be an easy thing to do, establishing short term goals as well as long term ones makes the results seem more achievable.http://www.lowermybills.com/tipsadvice/savings.jsp Establishing a savings routine takes determination and dedication, but may be accomplished in part by changing daily routines.http://www.lendingtree.com/smartborrower/saving-money/money-saving-tips/tips-to-save-money-every-day/

Even in times of low income, investing and saving for the future can be accomplished by planning where to spend funds and tracking any surplus amounts over the budget. MSN Money author, Jennifer Mulrean says being able to save money has less to do with how much you make and more to do with how willing you are to make adjustments which allow you to save. Tahira Hira, a professor of personal finance and consumer economics at Iowa State University, recommends assessing what is coming in financially and what the output must be. If the picture these numbers paint is not one you like, you must find a way to change it.http://moneycentral.msn.com/content/Savinganddebt/Savemoney/P36019.asp

Although it may take a good deal of commitment and sacrifice for you to reach your personal savings goals, the financial benefits that can come from a robust savings plan far outweigh the short-term cutbacks that you may have to endure.

• The first thing that any good financial expert will advise you to do when setting out on the path to savings is to make a budget. An accurate budget will allow you to identify all of your necessary expenses, which in turn will give you the ability to calculate exactly how much you can afford to set aside for savings. Here are some simple steps for setting up your budget:
  
  

1. Time Frame: Before you start your budget, you will need to decide on the time frame that you will use. Is yours going to be a monthly budget, a quarterly budget or a yearly budget? The most popular time frame is usually monthly (due to the fact that most bills come once a month), so that is what we'll use for this exercise.
   
   
2. Income: The first thing that you'll need to do when coming up with your budget is to figure out exactly how much income you have coming in. This should include your monthly salary (after taxes) and any supplemental income you may have coming in (from additional jobs, investments or other income sources). If you are in a salaried position, simply divide your yearly income by 12.
   
   
3. Expenses: Here is where things get interesting. Now that you've calculated how much money you have coming in each month, you'll need to figure out exactly how much you spend during the same period. While some expenses remain constant and are easy to figure out (Rent, Car Insurance, Car Payments, Phone & Cable Bills), others are not so easy to pin down. Expenses such as utilities, gas, food and entertainment may change from month to month, so the best way to figure them into your budget is to come up with a monthly average for each one. Over a three month period, keep a record of how much you spend on each of these things and then figure out, on average, how much you're spending each month. Add up all of these things to come up with a monthly total of your expenses. BetterBudgeting.com offers a spending worksheet which can be used for tracking expenses.http://www.betterbudgeting.com/freeworksheets/monthlyspending.htm
   
   
4. Calculate the Surplus: Now that you've figured out your monthly Income and Expenses, you can start to determine how much you have left over for savings. Simply subtract your monthly expenses from your monthly income to find out how much surplus money you have coming in each month. Fill in the figures on a budgeting worksheet to calculate the surplus. Samples of this type of worksheet can be found at BetterBudgeting.com also.http://www.betterbudgeting.com/budgetformsfree-basicbudgeting.htm While you don't need to put aside this exact amount for saving each month, this figure can give you a rough idea of how much you can afford to save. Note: If your monthly expenses turn out to be larger than your income, it is a good time to figure out ways to reduce your expenses to keep your spending more in line with your income. To help reduce costs, consider the tips offered on the Mahalo Guide page for how to cut household expenses.
   
   
5. Keep Records: While writing out your budget on a piece of scrap paper once every year may seem like the easiest way to go, it is wiser to keep a continuing record of your expenses, income and savings in a permanent location for easy update. While software programs such as Quicken, Microsoft Money, and online money management services like Mint.com can make it easier for you to manage your personal finances on the computer, something as simple as a personal ledger or notebook can be just as effective for keeping tabs on your budget.http://quicken.intuit.com/index.jhtml?priorityCode=3979700000&sc=google-qkn_master_brand_gen&gclid=CJW2lfKgpJACFQGnPAodjgLc8A http://www.microsoft.com/money/default.mspx http://www.mint.com/ Mint.com
   
   

• Once you've resolved to start saving money, you'll need to develop a plan. While a good savings plan doesn't need to be an elaborate affair, it should include a basic outline of the methods you will be using to jump-start your savings. Here are some suggestions for developing a practical savings plan:
  
  
  1. Set Goals: The best way to figure out how much you want to save is to set specific monetary goals.http://moneyfor20s.about.com/od/reasonsandwaystosave/ht/savings-goals.htm If there is a certain item you are saving for, start by calculating how much you need to save in order to pay for it. Next, figure out how much money you have to set aside each month in order to reach the goal in a reasonable amount of time. If you are saving for something with a less specific monetary value (such as money for an emergency fund, your retirement, or just a healthy nest egg), you should establish a goal to reach. Financial experts often recommend having enough money in an emergency fund to cover at least 3 to 6 months worth of household expenses.http://www.investopedia.com/articles/pf/05/EmergencyFund.asp
     
     
  2. Keep Track of Your Finances: The best way to make sure your savings plan is on track is to keep a close eye on your spending. This can include monitoring your ATM withdrawals, keeping a copy of your bank statements, collecting receipts from your entertainment spending or updating your budget to reflect changes in your income or expenses. Not only can this help you identify where your money is going, it can also keep you up to date on how much money you are saving through not spending. If spending is not curbed to match the amount of desired savings, the savings account will not grow. How you track the spending actions is not as important as actually tracking them.http://ohioline.osu.edu/mm-fact/0007.html
     
     
  3. Investing: Although most people think of investing as something done by people who already have a lot of money, it can also be a way for people with a modest income to help grow their overall savings.http://www.lowermybills.com/tipsadvice/savings.jsp Low-risk investment options, such as Individual Retirement Accounts (IRAs), 401(k)s, Certificates of Deposit (CD's) and Annuities can help people use the money they have to generate more money for saving.http://www.sec.gov/answers/annuity.htm http://www.investopedia.com/terms/i/ira.asp http://banking.about.com/od/cds/a/cdbasics.htm Some banks may even let you set up an Automatic Investment Plan (AIP) which automatically takes a portion of your checking or savings account (as much or as little as you like) and transfers it to an investment fund or retirement account.http://www.investopedia.com/terms/a/automaticinvestmentplan.asp
     
     
  4. Savings Strategies: If your surplus income each month isn't enough to meet your savings goals, you're going to have to figure out ways of saving the money needed to reach your goals. While you don't need to resort to selling a kidney or donating blood every week, there are a strategies you can use to spend less and save more.http://pueblo.gsa.gov/cic_text/money/66ways/index.html
     
     

• One of the basic tools you can use to help manage and further your savings goals is a savings account. Not only do savings accounts provide a safe, secure and convenient place for you to store the money you've saved, they can also (in certain instances) even help build your savings. If you don't have a savings account, it's time to set one up! If you already have a savings account, keep reading to make sure that you have the right one to meet your needs.

• Not all savings accounts are alike. Here are some of the most common types of savings accounts:
  
  
  1. Basic Savings Account: This is the most basic type of savings account that banks will usually offer.http://www.bbvacompass.com/personal/savings/basicSavingsAccount.cfm Under this type account you can deposit and withdraw money and the balance may earn a minimal rate of interest. While money in a savings accounts may generate withdrawal fees if removed to frequently, this can be an incentive to leave the money in place when you're trying to save. Automatic transfers from checking to a savings account may be offered by the bank.
     
     
  2. High Yield Savings Account: High yield savings accounts usually offer better interest rates than regular savings accounts but may come with more restrictions. Some high yield savings accounts have a minimum balance requirement and limit the amount of transactions that you can make each month. Some require a specific minimum amount for the initial deposit. To determine which bank option of high yield accounts is best for you, view a comparison on Bankrate.com to choose which matches your situation most closely.http://www.bankrate.com/funnel/savings/savings-results.aspx?local=false&IRA=false&prods=33&ic_id=CR_searchMMASavingsRates_checking_MMASavings
     
     
  3. Money Market Account: Money market accounts usually pay a higher interest rate than regular savings accounts (and often give you a higher rate for a higher balance), although they carry restrictions. A higher balance for initial deposit may be required and fewer withdrawals may be allowed each month.http://www.investopedia.com/terms/m/moneymarketaccount.asp
     
     
  4. Online Savings Account: With the emergence of online banking, many institutions started offering high-interest online savings accounts. Interests rates online may be higher than in the store front bank because the overhead is lower. Interest rates change on a frequent basis so research into which provider offers the best deal for you should be done when you are planning to open an account. Get Rich Slowly, a personal finance blog, offers a table showing rates current as of a recent time frame which is continually updated. The blog also contains comments by account holders about specific banking pros and cons.http://www.getrichslowly.org/blog/2007/03/21/which-online-high-yield-savings-account-is-best/ Companies such as ING Direct and HSBC Direct offer online savings accounts which may take the place of a traditional savings account.http://www.ingdirect.com/osa_google/ http://www.hsbcdirect.com/1/2/1/offer
     
     

• • Minimum Balance Requirements: Some savings accounts require you to keep a minimum balance in your account at all times and will penalize you if you fall below that amount. Tf your account does require a minimum balance, make sure you have enough money to meet the balance on a continuing basis.
    
    
  • Monthly Fees: Banks will sometimes charge a small monthly fee for the savings account, although some will waive the fee if you maintain a minimum balance. You will also want to find out if they charge extra for withdrawals, transfers or other transactions.
    
    
  • Interest Rates: Interest rates that are offered by different savings accounts can vary widely. Make sure to research different banks to find the best interest rates.
    
    
  • Access to Your Money: Banks have different rules when it comes to how you can access the money in your savings account. While some may not allow you to write checks with a savings account, others may allow withdrawals via an ATM card. Online banks without physical branches may require you to transfer money into your checking account before you can access it (which may involves a waiting period for processing). When choosing an account, consider how often you may need to access your money.

• It may seem like common sense, but the easiest and quickest way to start saving money is to curb your spending. Of course you don't need to eat ramen every night and turn off your electricity to do this. With a little ingenuity (and a few helpful suggestions), there's no reason you can't find ways to cut back on your expenses. Here are a few to get you started:
  
  
  1. Eat Out Less: While eating out can be fun and delicious, it can also take a serious bite out of your wallet. Try eating in more often and packing yourself a lunch for eating at work or at school. Besides saving money, making your own food can often be healthier too.http://www.lendingtree.com/smartborrower/Smarter-spending/5-tips-to-save-money-every-day.aspx
     
     
  2. Eliminate Expensive Coffee Drinks: If you stopped yourself from buying a $3.50 latte every day from Starbucks, you would have about $100 a month extra to put into your savings account. Buy yourself a simple coffee maker and some ground coffee beans at the supermarket and you'll be able to get your caffeine fix without spending a fortune.http://www.ehow.com/how_2088024_save-money.html
     
     
  3. Buy Used or Non-Brand Name Products: While the temptation to purchase the latest product from the top manufacturer on the market can be strong, the money you can save by buying used and non-brand name products can be substantial. Refurbished or "like-new" products are often just as reliable as new ones and can cost significantly less.http://moneycentral.msn.com/content/Savinganddebt/Savemoney/P36019.asp
     
     
  4. Eliminate Unnecessary Expenses: No matter how frugal you think you are, there are always ways more ways you can cut the fat. That subscription to Angler's Weekly you never read? Those 500 cable channels you never watch? That 5,000 minute-a-month phone plan you never come close to reaching? All of those can go.http://www.lendingtree.com/smartborrower/Smarter-spending/5-tips-to-save-money-every-day.aspx
     
     
  5. Energy Efficient Light-Bulbs: Although it may cost slightly more when making the initial investment, installing energy efficient light-bulbs throughout your house should reduce your electricity bill (not to mention being better for the environment.http://www.energyefficienthomearticles.com/Article/energy-efficient-homes---utility-bills----Ways-to-Save-Money-on-Your-Heating---Energy-Bills-/5500

• While we won't get into the specific details of the often complicated measures that many people will need to take in order to get out of debt (for more information on that, see Mahalo's guide to How to Get Out of Debt), we will go over the ways in which having debt can prevent you from saving money and how you can starting turning that around.
  
  
  1. Pay Off Your Credit Card Debt: While having a credit card that you pay off in full each month is perfectly acceptable (even recommended if you're trying to build up your credit), having an outstanding balance that you have to pay interest on is a recipe for disaster. Think of it this way: Calculate how much money you pay in interest on your credit card debt (not paying off the balance, just the interest). Then figure out how much money you would have if you were to put that money into a savings account rather than into the pockets of the credit card companies. You get the picture.
     
     
  2. Don't Buy Things You Can't Afford Outright: One of the main reasons that people go into debt (and consequently cannot save money) is that they buy things they can't afford on credit. Even if you eventually pay off the debt, the extra money that you pay in interest will mean that you've paid more for the item than it was even worth in the first place.
     
     
  3. Save Money to Pay Off Your Debt: The same principles that you can use to curb your spending and start putting money away for savings can also be used to save up enough money to pay off your debts. Start by figuring out how much debt you need to pay off, and then calculate how much you will need to save each month in order to pay it off in a reasonable amount of time (don't forget to calculate the interest in). Once you've gotten yourself out of the red, you can finally start working your way towards a healthy degree of savings.

• Even the most responsible, intelligent and practical people can sometimes become overwhelmed by their finances and have difficulty saving money. So if you are one of those people who can never seem to save enough money, don't worry! You are not alone. No matter how inept you think you are at saving, there is hope. And while it may take some changes to your lifestyle and spending habits, the steps discussed above can help get you on your way towards your savings goals. Because the temporary thrill that you get from spending money can't come close to the satisfaction and sense of accomplishment that you'll feel when you look at your bank account and see all the money you've been able to save.