Managing money is about making the most of the available funds. But it doesn’t translate into sacrificing every leisure in life. Instead, a few smart strategies can help one manage expenses with ease. The goal is to understand spending habits, set realistic goals, and make long-term adjustments. From learning how to cut expenses to investing in a retirement account and canceling unwanted subscriptions, there are many ways to save money effectively.
1) Create a Budget
Setting a budget is one of the first smart money-saving habits to explore. This involves calculating the available income, followed by setting priorities for spending. There are two methods to achieve this.
- 50/30/20 approach: Approximately 50% of after-tax income should be allocated towards necessities, 30% to wants, and 20% to savings, including debt payments. If any allocations surpass these limits, adjust them in other funds.
- Envelope budgeting approach: This is a practical approach to managing finances, with a focus on discretionary spending. The individual must assign physical or digital envelopes to categorize expenses, such as groceries, travel, and personal care. Each category is allotted a fixed amount of money. After the funds from each envelope are depleted, one has to halt spending until the next paycheck.
2) Set Realistic Savings Goals
Creating goals for saving money is easy, but following through on these commitments can be challenging. Certain expenses can arise without warning. So, it’s best to set specific and realistic goals for savings, big or small. If there’s additional income, put it in a retirement fund. Alternatively, the money could be used to pay off debt, even if it’s just an extra $30 a month. Several financial websites have dedicated savings calculators to help individuals determine how much they would have to save each month or year to reach their goals.
3) Use Money-Saving Apps
An app exists for almost anything, including ways to save more money. There are cashback apps that offer money back on purchases or gift cards. These apps can be used for almost all purchases, including groceries, gas, travel, and shopping. Signing up and accessing the app is easy. Users typically have to upload a picture of the receipt, and the app provides instructions to navigate the rest of the process. Furthermore, some apps contain features to help with budgeting, like expense categorization and tracking. The apps may even allow users to link bank accounts to automate these processes.
4) Set Up an Emergency Fund
Building an emergency fund can help ease finances on a rainy day. Allocate a small portion of the paycheck to the emergency fund. Experts recommend putting about three to six months’ worth of funds in this account or more. The emergency fund differs from a savings account and must not be used to cover basic expenses, like fuel or groceries.
5) Make a Grocery List
It’s common for shoppers to walk into a store to buy one thing, forget about it, and pick up five other products they believe they need at home. It’s only after paying for the items and getting home that the individual may realize they never really needed what they bought. This is why creating a grocery list is important. The list will help one stick to only the important items for the week or month. Ultimately, buying limited amounts will help lower grocery bills and reduce overconsumption. Most grocery stores release weekly promotions online with offers and discounts that allow shoppers to plan their purchases. Some even have designated apps with features to create a shopping list.
6) Get Rid of Unnecessary Subscriptions
Subscriptions to different types of platforms, like streaming services and magazines, help individuals enjoy exclusive perks. However, getting rid of unwanted subscriptions is probably the best way to save money. In the event of a cash crunch, canceling these subscriptions can help boost monthly savings, even if it’s just a couple of dollars. Also, if some platforms offer specific content only at one time of the year, consider subscribing to it only for that month instead of paying for the whole year.
7) Save for Retirement
One of the most practical money-saving tips is to save for retirement. If there is a little extra money to put aside, invest it in retirement accounts, like:
- 401(k) plan: This is offered by an employer and lets the employee deposit pretax dollars through a regular deduction from their paycheck. It is also advisable to increase the contribution by 1 percent each year, if it’s manageable, to improve long-term savings.
- Individual retirement account (IRA): Any money invested in a traditional IRA is tax-deferred. This is an individually directed account, not sponsored by an employer. Withdrawals from this account can be made following retirement, and the money would be taxed at the regular income tax rate.
- Roth IRA: The contributions are not tax-deductible during deposits. Furthermore, the funds from this account could be withdrawn tax-free during retirement.
8) Cut Down on Outdoor Expenses
It’s normal for the working individual to stop at their nearest coffee shop for a cup of joe before work. However, while these expenses may seem insignificant, they amount to quite a bit over the month. For instance, a cup of coffee costs about $5 daily, which is about $100 over 20 days in the month. Instead, try to make the coffee at home, which would take a fraction of what it would cost outdoors.
