To make money savings you need something more than to spend less money. How much to save? Where to place them? How can you be sure that it will remain there «spared»? The first step is to set realistic goals, to keep control of costs and to «pay yourself» first of all.
1. Define your objective
For short-term objectives setting goals can be simple. If you just want to buy a game, all you have to do is find out how much it costs. If you wish to buy a house, calculate the amount of the advance you should provide. For longer-term goals such as retirement, you should do more planning (estimate how much money you will need to live comfortably after retirement and estimate how your investments will help you achieve your goals).
– «Kill» your debt first. Calculating how much you spend each month on your debts shows that eradication is the fastest way to «free» money. Once the money is «released» of the debt can be easily reused for savings.
2. Set a timetable
For example, «I want to be able to buy a house in three years from now». Set a date for the attainment of short-term objectives and ensure that the goal is attainable within that time. If it is not possible then you will simply be discouraged.
3. Determine the amount of savings
Calculate how much savings would be per week, per month, or per salary for achieving each of your goals. For everything you want to buy calculate how much you have to save to get through the schedule you set. For most purposes it is better to save the same amount each period. For example, if you want to give a 20,000 dollars deposit on a house in 36 months you should saved 550 dollars each month. But if your salary amounts to 1,000 dollars monthly, then your goal does not seem realistic. What you should do is to change the schedule to come up with a more feasible scenario.
4. Keep records of your expenses
The amount of money you can save is the difference between two activities: the amount of your income and the amount of your spending. Since you have more control on the amount you spend, it is wise to look critically at your expenses. Write for two weeks or a month where you spend your money. Be as detailed as possible in your «inventory», including small purchases. Then try to categorize the type of expenses. For example: rent, car insurance, car expenses, phone bills, petrol, food, entertainment, etc.
5. Cut your expenses
Look out your spending the last two months. It is very likely to be surprised when you look at costs: 100 dollars to ice cream, 150 dollars in parking tickets, etc. Probably you will find some expenses that you can cut. Depending on the amount you need to save, you may need to take some difficult decisions. Set your priorities and make the cuts that would have less impact on your well being. Calculate how much you win every year from these cuts, so you will have more incentives to perform them. For example you can move to a less expensive apartment, you can refinance your mortgage, you can save money by using natural gas, to reduce the movements with your car, limiting the use of mobile phones, home cooking e.t.c
6. Stop using the credit card!
Pay your purchases with cash, not checks or credit cards. It is easier to make more expenses when making your purchases with plastic money because they you do not know at any moment how much money you have in your pocket. With cash, instead, you can monitor the «supply» you exhausted.
7. Pay yourself first
Savings should be your priority, so do not tell yourself that savings will be what is left at the end of the month. You must deposit in your savings account once you get your salary. For example you can set an automatic money transfer from your payroll account to your savings account.