Learning to save 10% of your income, is the one financial habit you must implement. The common response from most people when I tell them this though is “How can I afford saving 10% of my income when I’m living paycheck to paycheck?”
If you’re wondering what is the best way to save money, the best advice I have is to start slowly. Too many times, I see people very motivated to finally get their finances in order. However, a month later that motivation is gone and they are back to their bad financial habits.
What ends up happening is they try the shotgun approach to financial planning. Instead of improving one area of their finances, they believe they need to fix it all. They are trying to cut costs on groceries, utilities, eating out, shopping, etc… at the same time. Plus, they are trying to learn about investing, when they haven’t even paid off high interest debt.
Rarely have I seen the shotgun approach work. It’s the same reason why someone who sets a New Year’s resolution to get in shape by waking up at 5 AM, going to the gym, and eat healthy every single day of the week, fails on day 3.
Those who succeed start slow and build their self discipline up. Improving your health and your financial situation, isn’t something you do in just one week. It’s two areas of your life that you have to pay attention to your whole life.
The best way to save money is to walk before you run. It’s fine if you don’t have the self-discipline today to save 10% of your income. The goal is to get there eventually.
For anyone whose struggling and who has tried the shotgun approach before, here are two different approaches to reaching a 10% savings rate that will give you a greater chance of succeeding.
Best Way to Save Money – Strategy # 1 – Decrease Specific Category By 10% Each Month
Instead of attempting to save 10% off of your expenses next month, target a specific category of your spending.
For example, say you spend $250 on eating out each month. Your goal for next month is to spend 10% less or $25 total.
At least once a week, set a reminder to manage how you’re doing. If you can only spend $225 a month on eating out, that’s just less than $60 a week. As long as you’re spending less than $60 a week, you’re on pace to achieve your goal.
If you can do this to each of your biggest expenses over a year, you will have enough left over to start saving 10% of your income.
Best Way to Save Money – Strategy # 2 – Increase Savings by 1% Each Month
Another simple approach for those who haven’t developed the habit of saving 10% of their income is to began by saving 1% each month. Once you have learned to save 1%, increase your savings by another 1%. Keep on progressing until you have managed to save 10%.
A tip for anyone doing this is to make it automatic. Set up an automatic withdrawal from your paycheck to a savings account.
It’s pretty amazing to think that in only ten months, you can implement a financial habit that will change your life.
Walk Before You Run
The goal is to not get overwhelmed. Personal finance is a lifetime skill. Those who succeed develop habits over their lifetime, not all in one week.
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