Saving money can be stressful and overwhelming at times. However, it’s crucial to save because we sometimes need that extra money for an emergency. Therefore, we’re going to look at how to save money as a beginner.
The main reason why I started saving money.
Every end of the month, my bills pass by and take their slice of the cake. I remember how I used to work and pay off my bills as I receive my pay. Over time, this became stressful and overwhelming. I wasn’t a fan of my paycheques to paycheques lifestyle.
In 2018, my sister asked me how much I was making and told me that I could save $10,000 a year. At that time, I only had my chequing and savings account. I didn’t even have $1,000 in my savings account.
After calculating my expenses and income, I felt like I was wasting my money in so many areas that something had to change. After doing exactly what I will show you in this blog post, the stress that I usually have at the end of the month disappeared.
If you’re currently stuck living paycheques to paycheques, and you don’t know where to start, this is for you. The best way to make sure that your bills aren’t eating the whole cake, you need to know how to save money. I’m going to share how I went from saving $500 to around $1,500 a month.
What you need to know when you start saving money
Before we go any further, I wanted to clarify that it takes time, practice, and mistakes to create healthy money-saving habits. This habit doesn’t come overnight.
You spent your life working and spending money so now you should start saving. You will not be able to ace this overnight. However, you must have the will to save, grow your bank account, and put in work.
Feel free to take some notes, bookmark this post, and come back to it whenever you need a refresher. Again, I’m sharing with you how I started saving.
Today, the year 2020 is almost over. I started doing this two years ago; 2018 was a challenging year for me. In 2019 I learned from my mistakes, and in 2020, I put in a lot of work! I promise that I’ll share my results in 2021 so that you know that if I can do it, you can do it too.
Why should you start saving money?
Take a moment to answer that question seriously. Wouldn’t you rather spend than save? I know that I would. It’s more fun to spend money and get everything we want, I mean, we worked for it.
However, saving money is beneficial in the long term. I can give you so many reasons why you should start saving right now. But first, you have to know your reasons.
Why should you start saving money?
Knowing the reason why you save money will keep you motivated. There are many reasons to save money. For example, you can save for an emergency, for vacation, for a big purchase, for a down payment, for your exit plan (whether you get fired or want to quit your job).
The list doesn’t stop there. I realized that you don’t have a choice to save because you never know what the future holds. And the fact that we don’t know the future this gives us a reason to save.
It’s essential to know your reason because it will motivate you to keep saving and being on track. Knowing my reasons to save worked for me; it encouraged me to keep saving because the end result is so rewarding.
What should you do to save money?
Many people, including me, will tell you to make a budget. But making a budget is actually the last thing you should do. Like I explained in The Importance of Making a Budget, a budget is like planning. And just like I explained above, you must have a personal reason why you budget.
Now, where do you start when it comes to saving? When I started saving money, I didn’t do it in the order mentioned below. However, if you’re new to this, I’d say to follow the order.
You will probably have to do multiple things at the same time. You can educate yourself because education doesn’t end and save money at the same time.
So before you start to plan, there’s homework you have to do. By homework, you will have to include these methods before you make your budget.
Increase your financial knowledge.
Many people don’t educate themselves when it comes to money. We all know that schools don’t teach financial education. Therefore, you have to educate yourself on your own time.
There are many ways to do it, but the best way is to read how other people did it. Just like you’re reading this blog post, it will help you understand how you can save money as a beginner.
So reading what you find online will be helpful to you. I don’t suggest trying everything that people tell you, but it’s essential to know the different methods.
Another way you can increase your financial education is by reading financial books. I suggest Total Money Makeover by Dave Ramsey, Unshakable by Tony Robbins, Real Money Answers by Patrice C. Washington, and 5 Day Weekend by Nik Halik. There are way more books out there. But those are going to help you understand money.
Also, if you wanted to understand how money works, I suggest these three excellent books; The Richest Man in Babylon by George S. Classon, Rich Dad Poor Dad by Robert Kiyosaki, and Think and Grow Rich by Napoleon Hill.
Start paying yourself first.
People spend hours working for everyone else, and when they get their paycheques, they don’t even pay themself first. Don’t be like other people.
When you read most of the financial education books, they will tell you to pay yourself first. But what do they mean by that? It means that you have to start putting money into your savings account.
On top of that, you’re not paying yourself to spend, but you’re paying yourself to increase financial health. Therefore, you have to take it seriously.
Have different types of savings account.
My advice to you is to have at least two savings account. This way, it’s easy for you to manage and to keep up with. One saving account would be for your wealth building and the other one for recreation.
Your wealth-building account will have the most of your savings, 15% of your income. This savings account is for the main reason you want to save. The percentage also depends on your abilities; if you can’t do 15%, start small and increase as you get comfortable.
The wealth-building savings account should be a High-Interest savings account. If you’re in Canada, I highly suggest opening a TFSA High-Interest savings account if you don’t already have one.
Your recreation savings account is solely for your enjoyment. For example, movie nights, concert tickets, getting your nails done etc. This account should receive at least 3% of your paycheques.
The recreation savings account can be your standard savings account. The reason is, you’ll be able to take money out quickly and frequently.
Live below your means.
The hardest part but most evident about what you should do when saving money is living below your means. Many of us struggle to do this, even me.
Although you try your best not to go over your budget, you sometimes can’t help it. Therefore, I suggest that you cut expenses that you can live without or that’s easy to replace for a start.
For example, stop buying your lunch or ordering out and start cooking, making your lunch. Stop ordering coffee and get yourself a mug and make coffee at home.
Keep in mind that living below your means that you’re buying things you need and not things you want. Every time you’re about to spend on something, ask yourself, “Do I really need it?”
Another method to live below your means is to take your time before buying something. When you’re at the store and see the item, look at the price and go home. Take your time to think if you need that item, and if you do, you can go back and buy it. If you forget about the item, that means that you don’t need it.
Focus on paying off your debts.
Last year, I had the chance to get some financial tips from a financial advisor. He highly recommended to pay off my credit card debts first before starting to save. That way, the money that I use to pay off my debts, I had the chance to save it now.
So before you start saving, pay off some of those high-interest debts. These are mostly your credit card debts, which is important because, as time passes, you end up paying more than you owe.
Also, if you don’t have any credit card debts or you paid it off. Look for another debt to pay off. This way, you will have more money to save.
How much should you save as a beginner?
As you’re starting to save, give yourself small goals. The below method is how I started saving money. I’m convinced that if you’re new to savings when you have this habit, you will be comfortable to level up your goals.
Know how much is your monthly income
Everyone has different streams of income. Some people have only one stream, and some have multiple streams of income.
It’s necessary to know roughly how your monthly income. If you have multiple streams of income, you have to combine them.
Calculate your monthly spending
Since everything is online, it’s easier for you to see how much you spent in the past months and see your spending habits. You can see how much you spent on take-outs, bills, and entertainment.
Take a notebook and write everything down by category with the total amount. Once you have at least three months of your spendings on paper, you should see how much you should have left for each month.
That remaining amount should be the amount that goes into your savings account. If you see that you didn’t have any money left in those three months, you have to figure out why.
When you start saving money this way, you will be able to; know where your money is going and how much you should be saving every month. Remember, this is only the beginning of saving. If you don’t have a goal of how much you should start saving, this will help you determine that goal.
A short example of the method
Nicole makes around $2,500 a month.
She verifies her spending habits for the last three months, and every month roughly looks like this:
Housing – $760
Bus pass: $105
Food – $300
Personal – $85
Health – $50
Debt – $520
Credit card: $300
Student loan: $220
Lifestyle – $180
The total is $2,000, so Nicole has $500 that’s left.
Now that Nicole notices that she can be saving $500 every month, this should be her goal for next month. After that, she can decide to remove any spendings under “Personal” or “Lifestyle” because there are just things that she doesn’t need.
She can also decide to pay off her credit card debt to add $300 to her savings.
Notice that to start, I’m not advising you to start saving 15%. Since this is only the beginning of saving, you should know your numbers and see where you can cut. When you get comfortable doing so, you can then challenge yourself to save by percentage.
That was a simple example for you to see how you can start saving as of today. You can control your finances like this and never stress again because of the lack of money.
Now, let’s wrap up:
When you’re starting to save money, it’s not going to be easy. It’s like starting a new diet. Sometimes you’ll forget, sometimes you’d want to use the money. So be patient with yourself because it’s a process.
In the beginning, there’s going to be a lot to consider. In this post, I outlined the things that I did, and it turned into a habit. After saving the remaining of my income, I then started challenging myself to save more. I planned to save $10,000 a year, and then it turned into $20,000 because I realized that I could do so.
So when you get your financial education going, your brain will start looking for ways to save. And believe me, it’s only after I knew how money worked that I got the motivation to save and stick to the plans.
If I can do it, I know that you can. Stay tuned for more money-saving tips! Subscribe to the Email Newsletter so that you don’t miss anything.