Saving money has been a problem ever since for the greater part of people. It is either because of the rising standards of living, impulsive spending, or due to the total lack of financial training, most find it difficult to save money for future needs. Indeed, one of the studies led by the Federal Reserve proved that 40% of Americans would have to borrow or sell something to pay for a $400 emergency expense. Actually, the meaning of that statistic is to show one simple fact: saving does not require discipline but rather financial preparedness.
Of course, it gets even worse in a situation where some form of unplanned expenses crops up. Medical emergencies, home repairs, or a sudden loss of job could cripple one’s financial stability in the absence of some form of saving cushion. However, the challenge for many people will not really be why savings are important but how to make saving part of their financial routine.
The pressure to keep up with trends, living on credit cards, and general personal finance education make it incredibly easy to overspend and painfully hard to save. That is not all; per Bankrate’s annual financial security survey, a whole 41% of all U.S. adults can afford to cover a surprise $1,000 expense by using their savings. Apparently, saving is one problem that is in dire need of urgent attention.
Agitation: “What is the long-term effect of failing to save?
Now, let one reflect on the long-term results of not saving. It is all so easy to dismiss any thought of saving when the bills become due and one is tempted with short-term pleasures. Real-life scenarios such as these may result in a debt spiral reinforcing financial insecurity; some sort of vicious circle which will be very hard to break out of.
Let me give a better example of that-the financial crisis of 2008. Several millions in America were put off work, and because they hadn’t put something in an emergency fund, lost their homes against an inability to pay the mortgages. What happened after? It took years to recover from the shocking blow on both personal and economic levels. Of course, the ones who had not saved in advance suffered most; this painful lesson drove home the point that one’s financial security is directly related to the ability of a person to save.
Besides the economic crisis, not having saved enough presses on your daily life: huge financial stress, hence more stress and anxiety. Always being concerned about the aspect of money, it will take its toll on health and may even affect the relationship and well-being in general. It is not only a question of financial security in emergencies-saving brings in peace of mind.
Put more concretely, retirement is a major landmark in one’s financial life, and comfortable retirement may be flatly impossible without long-term savings. In no way may Social Security benefits keep most people in retirement. Actually, on average, the check from Social Security is about 1,800 dollars per month, which will just not cover even basic living expenses in large parts of the country. Otherwise, retirees sans extra savings, would be required to work deep into their 70s, or to live on a very skimpy budget.
Save Automatically
How, then, can you enter this vicious circle of saving from financial stress and make saving a habit that will be continued? It all starts with your mind- taking these small achievable steps that eventually set the snow rolling. In fact, there’s no magic trick for saving; it’s just continuity and realism. Here’s where to get started:
1. Automate Your Savings
One can save money best by making it an automated procedure. Most banks will automatically transfer funds from your checking account to your savings account. Even if one is only able to afford a minimum of money, say $10 or $20, per week, this being automated will ensure that money is saved before ever having the opportunity to spend it. AARP added that automating your savings will enable an individual to reach his or her financial goals an astonishing 12% more often than by not automating them.
Having something you save for makes it more real. Whether saving for a vacation, a down payment on a house, or even just saving to have an emergency fund, identifying what you save for will keep you motivated. In fact, according to one University of Scranton study, those people who created specific financial goals were 42 percent more likely to actually reach those goals.
Start small: Try saving $500 over three months to start. When you’ve reached that, push on for more. Give yourself the time to celebrate small wins as a means of building confidence and momentum.
3. Track Your Spending
One of the frustrating things about saving is not knowing where one’s money goes. A person can seem to be living within his or her means, yet small purchases can be frequent and nibble away what seems like an adequate income. Step number one involves charting every purchase made for one month. The exercise will give you an actual picture of where your spending habits lie and where you need to cut back on.
In fact, one study from NerdWallet showed that people who track their spending cut discretionary spending by an average of 18%. Scale back the spending on eating out or those overused subscription services that gobble up most of your money and free it up for contributing to your savings account.
4. Build an Emergency Fund
An emergency fund serves as cushioning or armor against anything that may go wrong. That is, money in reserve to support you for three to six months should you get fired or have another economic bombshell hit you. As one 2019 report published by the Pew Research Center made clear, for example, an astonishing 60% of Americans don’t have enough money on hand to cover a $1,000 emergency. An astonishing fact, but it also opens avenues with which one can act.
Just think about putting something into your rainy-day fund each payday, even if that means just a small percent of what you bring home. If all you could afford was 5%, well, at least it’s something. In due time, you will build up that emergency fund that will also cut down your stress about not being ready for anything out of the blue.
5. Reduce High-Interest Debt
Of course, when debts bearing high interests are being paid all the time, it is very difficult to save. Of all the debts, credit card debt constitutes one of the major drains that the finances of many are usually subjected to. Indeed, in the United States, credit card companies charge more than the average over 16% interest on card balances, with many charging considerably more. If you make only the minimum payment, you could be paying off that debt-and racking up even more interest on it-for years to come.
For blasting through this barrier, pay off the highest-interest debt. Sometimes called the “avalanche method,” this will save you money over the long haul. In that way, once your high-interest debt is eliminated, you’ll have more disposable income to stash in savings.
Case Study: The Power of Consistent Savings
Now, I refer to the real example to show how small savings created the biggest impacts: In 2010, after realizing they had no emergency fund and only increasing credit card debt, a couple, Emily and Jake, outlined a goal to save $1,000 in six months while working on debt settlement.
They first arranged for automatic transfers of $25 a week to a savings account. Then they began to track their spending and discovered they were spending $200 a month dining out. They cut that back to just one meal out a month, freeing up $150 a month which they also transferred into their savings.
They managed to achieve the milestone of $1,000 in their savings account in four months. As it was a first milestone, they were highly geared towards saving more and more money. This could be achieved by increasing how much money they automatically transferred by $50 dollars on a weekly basis to build, in one year, an emergency fund of $5,000 and pay off credit card debt of $3,000 and begin saving money for a down payment on a house.
This case was only for illustration and narration of how such small steps, like automation of saving, cutting unnecessary expenses, and clear setting of goals, pay enormous dividends in the form of financial progress. By making saving a habit, both Emily and Jake reached financial security with at least a minimized quantity of stress caused by the latter.
Conclusion: Start Saving Today
I just find it very overwhelming to save money, but it in reality is actually one of the major financial habits you could develop. It’s not about going without; it’s not about giant sacrifices. These are small, little, consistent changes that will slowly create financial security for you. Be it automation of savings, tracking of spending, or paying off your debt, every step taken will get you closer toward your financial goal.
Just look at the statistics: too many of us are living without financial security that only savings could provide. Take control today of eliminating that stress of living paycheck to paycheck. Make sure now of a much better future for yourself. Why wait? It is time to save-your future self will thank you.