Many people work hard and earn a good income but feel like it’s a struggle to save money. They don’t have the expertise to develop a financial plan to offer them security and progress towards crucial financial goals. They think asset management is only for people with seven figures between their saving accounts and their investment accounts.
Not setting a savings goal makes the future look bleak. Nobody wants to lose sleep over unexpected bills. Without a savings goal, you may not be able to map out the steps to establish an emergency fund or save money for a down payment or plan for a comfortable retirement.
On the positive side, almost everybody can develop a plan to find a way to divert extra money to fund their savings account. We realize that many folks need guidance and support to get started. Don’t wait to contact Korving & Company, LLC in Suffolk, Virginia. Our experienced team will work to understand your unique situation and then tailor solutions to make life-changing improvements to your personal finances.
GoBankingRates reported an average personal savings rate of over 32 percent during the pandemic. Since then, decreased government handouts, rising costs, and the ability to travel or access entertainment have made saving more challenging. Still, the pandemic’s disruption benefited some people. It allowed them to see that changes in their lifestyle and perspective could help them change their financial lives.
Everyone can save money. You need to develop a plan and attitude towards saving. Your own personal savings goals may vary. Depending on income and financial goals, you may decide you can only save $5,000 a year. Some of you can save $20,000 or more every year.
To meet your personal savings challenge, you need to gain control of your spending. You can do it by following straightforward steps. You should set goals, understand your spending habits, and reduce unnecessary expenses.
You’re most likely to succeed if you set goals. Go ahead and aim high by setting ambitious goals. That way, even if you are slightly off target, you may still be higher than if you aimed directly for your target.
You should start with personal goals that you find meaningful. For instance, consider the feeling of security of knowing that you have a checking account with a balance large enough to pay a dentist or auto shop. Imagine the feeling of financial freedom that you will enjoy after you successfully saved for retirement.
Can you save $10K a year? That figure does not look as intimidating if you think of it as setting aside about $200 a week. US News says that’s less than the average weekly grocery bill for a family of four.
Many people find this goal achievable through budgeting and reducing waste, such as too much dining out and trips to the coffee shop. Still, if $200 a week sounds like too much, consider starting somewhere – even if you can only save $100 a week, you’ll have $5,200 in a year.
Figuring out your own savings goal shouldn’t take complex math. It will, however, take an earnest commitment. You may need to set a tentative plan and adjust it as you learn more about your spending habits or your income increases.
You might first divide your finances into income, saving, and spending. Most people know how much they earn and save but struggle to understand their spending. You must understand and control your spending budget to hold onto any amount of money.
Lucky for you, technology can help automate your budgeting process. The right tools can even make it fun, like a game. According to CNBC, apps like Mint make budgeting easy and efficient.
The app connects to various accounts to track savings, spending, and income. It can also send payment alerts. Best of all, Mint offers many helpful, free features. You can try it out for free to decide if the premium version provides value.
Do you want to increase the balance in your savings accounts and investment accounts? The simple answer is that you will need to spend less than you earn. The budget process should uncover wasteful spending. Some examples include:
Some people break down their income and monthly expenses and still struggle. They don’t have enough to set aside extra cash for savings. They must earn more money to improve their bank account balance.
Government websites report increases in personal income this year, but personal spending also increased. Have you talked with your current employer about the potential for a raise? If so, and they’ve told you no or dragged their feet, you might have a chance to give yourself a raise by switching employers.
If you like your employer or co-workers and don’t want to rock the boat, consider side hustles. The amount of money you can make in a few hours in the evening or on weekends may surprise you. The best gig will depend upon your talents and preferences.
For instance, can you offer to mow your neighbor’s lawn, run errands, or paint a room? Could you find extra things around the house to sell? Would you be interested in driving for one of the ride-sharing services or meal delivery services? If you have a particular expertise, you can set your own hours to answer questions and help people with services like JustAnswer. Topics range from cars and electronics to legal and wellness.
How do you typically use gifts, tax refunds, or other unexpected windfalls? Instead of considering such things as excuses to spend more, you can view them as an excellent chance to catch up on savings.
For instance, if you need to divert savings to pay for an unexpected car repair one month early in the year, you could use your tax refund to make up the difference a few months later.
Don’t think of a budget as something extremely rigid that will keep you from freely living your life. Understanding your spending will not imprison or restrict you. In fact, it’s just the opposite. Over time as you grow comfortable in your budget and are consistently saving, you’ll see that budgeting is an essential tool assisting your financial journey. Properly creating a budget involves gathering the information you need to gain control over your finances and determining how much you should save versus spend.
Your budget will serve these four primary purposes in helping improve your personal finances:
You should give yourself credit for choosing to improve your finances. Most of us have vowed to make changes that we didn’t keep very long. As we know from failed new year’s resolutions, lifestyle changes require developing new behaviors and turning them into habits. Once you resolve to start saving more money, how can you stick to your plan so that you become successful at it?
The American Psychological Association says that people should make lasting changes by thinking of them as a gradual evolution more than a resolution. For you, this could mean changing habits gradually, measuring progress, and getting support when needed.
These practical suggestions can help you stay on track and even get back on track after a misstep.
Many weight-loss programs have participants weigh themselves each week. This timing avoids frustration because of daily fluctuations. At the same time, it has people track their progress often enough to ensure they are still staying on track.
In some ways, you can compare improving your financial situation to improving your health. If you set aside a few minutes each week to track expenses, you can see how well you’ve stuck to your budget.
For many, frugality becomes a fun and challenging part of their lifestyle. These dedicated savers feel victorious each time they pay off a credit card balance, rack up coupon savings on their grocery store app, turn those grocery rewards points into dollars off at the pump, and watch their dividend and interest income build to their savings.
Even if you do not want to engage in a savings challenge daily, you can feel satisfied when you explore smarter ways to reduce living expenses. For instance:
If you want to save $10K yearly, your determination might get you there. Ten thousand may sound like a substantial sum, but when you divide it by 12 months in a year, you come up with a monthly goal of $833.34.
That sum gets even easier to manage when you figure that saving about $208 a week will help you achieve your financial goals. Even better, that figure translates into about $30 a day. How many days have you spent that much or more on a restaurant meal when you could have enjoyed a tasty dinner at home? Think of it as paying yourself first for an honest work day.
Also, keep in mind that saving money in high-yield savings accounts or investment accounts will help your money earn even more money over time. If you save $10K annually, you’ll actually wind up with more than that at the end of the year if you use a high-yield savings account because of the interest that you’ll have earned during the year.
You will do even better if you maintain your progress over time. Think of how much will add up in five years, ten years, or even thirty years if you continue saving all that time.
You might enjoy using this savings goal calculator to determine how much you should save to meet various goals over time. For instance, you can use the calculator to see how much you need to save each month to save $50,000 for a real estate down payment in five years.
Have you tried to set aside $10K a year and failed? If you manage to save anything, you should still consider your project a success and a learning experience.
Perhaps you set overly ambitious goals and should aim for a more modest one. For instance, you might have more money to invest after paying off student loans. You might also have more time to earn and save money after your child enters school. You can always revisit the amount you decide to save later if your expenses decrease or your income increases. Dave Ramsey has some helpful books on how to get out of debt ruts and start on the path to saving and financial freedom.
Determination to save will only take you so far. Even if you don’t have much extra time, you can still explore some other ways to earn more money.
Committed savers love passive income. This income depends upon using your assets to earn income without additional contributions. After all, successful people value their time. You will enjoy much more freedom when your money works for you, too.
Earnings on your savings offer you a form of passive income. When your bank account earns interest or stocks pay dividends, that counts as income. Remembering that you can put your money to work making more money should offer extra incentive to save as much as possible.
Even better, your earnings will compound. If you’ve saved $10,000 that earns five percent a year, by the second year, you’ll earn interest on $10,500. It’s like your own money is working to provide you with income and will even give itself raises.
At first, you won’t have much money saved, so your interest or dividend income won’t snowball rapidly. We know some of you may not have time to handle more work hours to earn extra income you can put towards your goals.
To hasten your progress towards financial freedom, you can consider other sources of passive income. You may have other assets to employ if you lack time and money. For example:
As the name implies, earning active income takes some effort. At the same time, you will find that many active income opportunities don’t require as much time as getting a second job. You may easily balance these gigs with your current employment or family obligations.
Even better, you can choose these kinds of opportunities based on things you already enjoy:
Anybody who has ever lost sleep or felt distracted worrying about how to pay a cell phone bill or finding the funds to handle an urgent dental visit understands the importance of financial security for peace of mind.
Still, it will take some discipline to achieve your savings goals. If you need to give up some immediate pleasures to reach long-term goals, it helps to picture how much financial security can improve your life. For example:
Committing to a financial plan for long-term wealth building and security makes sense. Still, you might not know the best places to put your money for optimal results. Also, you may not understand the big picture of how various alternatives and choices may impact taxes, your ability to plan for future uncertainties, and family members and loved ones.
Also, though you understand the importance of saving, you know setbacks and temptations will arise in the future that may tempt you to make snap decisions that could materially impact your overall financial picture and undo much of your hard work and savings. The American Psychological Association says that finding support offers one of the best ways to ensure long-term commitment to goals.
Qualified financial planners will take time to understand your goals. They can map out a plan that accounts for all variables. Perhaps best of all, your financial planner can provide long-term support to help navigate future changes and disruptions. Instead of trying to build wealth on your own, you will have a team in place.
Lots of people say they will start saving next month or next year. Financially secure people may tell you the best time to start saving occurred five or ten years ago. However, if you aren’t already saving, the best time happens today! The sooner you commit to saving, the better off you’ll be in the long run.
Contact Korving & Company LLC in Suffolk, VA today to discuss your financial dreams and goals. By next year, you could already enjoy significant progress on your financial journey and peace of mind.
Arie J. Korving, a CERTIFIED FINANCIAL PLANNER™ professional, has been delivering customized wealth management solutions to his clients for more than three decades. Prior to co-founding Korving & Company, he was First Vice President with UBS Wealth Management and held management positions with General Electric.