According to financial analyst Greg McBride, the biggest barrier to saving is not being in the habit of saving and the best way to get in the habit is to pay yourself first. Different people have different reasons to save, and different approaches depending on what you are trying to achieve. One overall savings goal is to put money away for an unforeseen occurrence; anything from health related problems, for repairs to a house or car, or an interruption to employment. Most experts advise to put three months salary away to cushion life’s little emergencies.
Autopilot
Greg advises that you should have money directly deposited from your salary account into a dedicated savings vehicle. This, he says, can be done concurrently with other goals, such as paying down debt or saving for retirement, not instead of those goals. You won’t miss what you don’t see. And putting your savings on autopilot is a great way to reinforce the savings habit when unplanned expenses inevitably come along and chew a hole in what you’ve saved.
Save for a purpose
The best saving strategy is to target a specific purchase or expense, like a new sofa, or a vacation, and plan your savings around that specific amount. In this case, you are advised to either put away a set amount every month, or even create a second bank account and divert the savings into that account so it can’t be touched, and once you reach the amount, you make the purchase with a clear conscience.
Very few people track their spending against a monthly budget. As McBride says,whether you call it a budget or a spending plan, getting a handle on your spending accomplishes two things: It helps you determine where you can cut back, and it helps maximize your savings efforts.
McBridge advises that by tracking your spending carefully for the first two months, you should be able to build a realistic monthly budget. Each month, track all of your expenses, everything from the 10 shilling tip to the grocery store bag boy to the monthly car loan payment. At month’s end, tally up your spending against the budget and see where you did well and where you didn’t. If you spent less than planned, move the excess into your high-yield savings account or use it to pay down debt.