If you think it’s crazy to plan a grand European vacation when you can barely pay rent each month, it’s possible that you’re not spending your money correctly. By budgeting, reallocating funds, and following a few tricks, almost anyone can get a handle on their finances and spend on something big. Here are a few steps to get you started.
Don’t Rely on Your Credit Card
Oftentimes shoppers spend with credit cards thinking they’ll have money to pay them off in the long run. You might not be able to make full payments now, but you think you’ll be wealthier further down the line. The ability to pay for something in small increments in the long run also affects how Americans manage their finances. Paying a little bit each month might seem like a good deal, but actually costs hundreds more in interest. Plus, when you finance for the next two, five, or event ten years, you will always have a payment taking away from your net income.
If there’s a major purchase you have in mind, like a new bed or dream vacation, start putting money away a couple months in advance in order to pay for it all at once. It’s better to save $100 a month and buy it in full than pay $110 a month for the next two years and spend more than $200 in interest.
Start Saving at Least 10% of Your Paycheck
Most economists recommend putting 10-15 percent of your paycheck each month into savings. This creates a nest egg in case emergency strikes. Almost a third of Americans have no emergency savings, and wouldn’t be able to pay rent or medical bills if they lost their jobs or were in an accident.
Saving is often a problem for low-income families, but making small cuts can quickly help them find the money. If a family just needs to save $200 to meet the 10% suggestion, they could eat in just once more a week. The average American spends $12 on a commercially prepared meal, meaning a family of four would spend $48. Conversely, there are many recipes that feed a family of four for under $10, meaning eating in just once a week can save a family of four hundreds of dollars.
Oftentimes these cuts hurt when they’re first implemented, but your family will come around if you make it fun by holding game nights or movie marathons, and your savings account will thank you.
Constantly Reevaluate Your Budget
Comb through your budget and look for signs of unnecessary spending. Paying for Amazon Prime’s two-day shipping isn’t valuable if you only order a couple items a year. It’s better to pay $4 in shipping on those items instead of the $100 annually for a rapid arrival. The same goes for your Costco and Sam’s Club membership; if you only go once a year, you may not be saving enough to justify the payment. While you may have joined with the intention of buying in bulk to save in the long run, you could actually be losing money.
Also keep an eye on your bank account to check for any unexpected charges. Sometimes Internet purchases or ATMs charge convenience fees that quickly add up. One way to save on fees if you find yourself wiring money to relatives abroad is to switch to an international money transfer service. Budgeting isn’t easy, it requires you to focus on your expenses and brainstorm ways they can be reduced.
Just because you’re living responsibly, doesn’t mean you have to be boring. If you’ve been cutting back and tracking your savings for a couple of months, treat yourself to celebrate your success. This may be something small like a latte on the way to work, or something bigger like a weekend staycation. Just don’t get too carried away: you can easily derail your savings if you start treating yourself every week or completely let yourself go for a few days.
It doesn’t matter what you want to save for, whether you have a dream of taking a luxury cruise or just want to crawl out of debt and have money in savings, anyone can start walking on the path to good money habits.