For most renters, putting away enough money for a security deposit and first and last month's rent is hard enough. What about saving for a down payment on a home? For some, it feels completely out of reach. That's why we've decided to take a serious look at our finances.
Between daily expenses, student loans, medical bills, credit card debt, and other financial obligations, more people are finding themselves living paycheck to paycheck. If this sounds like you, you're not alone. In fact, a quarter of millennials (age 18 to 37) and Gen Xers (38 to 53) have no savings, while about another quarter of both generations have less than three months’ worth put away, according to Bankrate.
No matter where you are in your savings journey, there's still time to turn things around. Here, five steps to help you reach your financial goals –– whether that be saving for a dream oceanfront house in Miami or having enough to comfortably support yourself in an NYC apartment rental.
First, it's important to know how much money you're working with. Start by printing out all credit card and bank statements. Take it one step further and create an Excel document with every purchase and expense you've paid for in the last six months. Whatever method you choose, try to get a better understanding of where your money is going. Then, ask yourself (and write down!) how much of your earnings are allocated toward non-negotiable expenses, such as rent, food, utility costs, and debt payments, versus funds relating to recreational activities. This will put you on a fast track to creating a meaningful budget (which we will address later on). If going through your bills and expenses sounds overwhelming, consider downloading a finance app. Mint, Wally, and YNAB are great places to start. They sync your bank accounts and credit cards all in one place, making it easy to get a comprehensive look at your daily, weekly, monthly, and even yearly spending habits.
2. Start small and save wherever you can.
Once you know what you're using your money on, consider creating a realistic budget. Say you make $4,000 per month and your rent and utilities cost $1,500. That leaves $2,500 to spend and save. Factor in your non-negotiable expenses and now you're left with just under $600. Assuming your monthly payments will not fluctuate, set an automatic bank transfer of $300 per month into a savings account. If you stick with it for an entire year, you'll reach $3,600. Plus, that leaves an extra $300 for miscellaneous expenses, such as a last-minute dinner out or a concert.
While you're at it, start to compare prices before making a purchase. Coupons and sales can make a big difference, especially in situations like these. If you have student loan or credit card debt to consider, split the extra $300 in half, resulting in $150 per month (or $37 per week) as a "fun" budget and an extra $150 to put toward outstanding payments. Remember: Every dollar counts. It might sound small now, but it won't be in five years.
3. Use cash.
Remember the $300 "fun" budget we mentioned? Consider taking it out of your bank account as cash. It'll hold you accountable to spend only what you have. If you're $300 is gone by week two, that means you should pump the breaks on recreational activities until next month. Don't view this as punishing yourself or your financial situation. Instead, think of it as holding yourself accountable. Remember, once you have at least three to six months' worth of savings in an account, you won't necessarily have to save in such a rigorous manner.
4. Understand the importance of emergency savings.
Speaking of three months' worth of savings, that's what most financial professionals recommend someone put away into a savings account, according to Bankrate. If you can, it would be best to get up to six or even 12 months' worth of funds. That gives you a large enough cushion in the event you lose your job or an unexpected expense pops up, such as a broken car or a roof leak. Remember: Your emergency savings is not meant to pay for vacations or shopping sprees. It's only to be used in the event your traditional income flow is not enough to cover your non-negotiable expenses.
5. Stay focused and look toward the future.
It's easy to get caught up with someone else's financial situation, and sometimes it's difficult not to let thoughts and questions creep in. (How does your co-worker afford a luxury car or a European vacation while you're struggling to pay rent?) It may seem challenging now, but try to focus your energy on the future, whether that includes securing am apartment rental, putting away three months' of emergency savings, or having enough for a down payment on a home.
If purchasing a home is something you aspire toward, take a look at average property costs in your neighborhood. Once you settle on a figure, aim to save 20 percent for a down payment. Take that figure and divide it by the amount of time you have to save, i.e. five, 10, or even 15 years. In this case, saving $300 per month will have you reach your home ownership goal in about 13 years. Take into account that your salary should increase over time, allowing you to put even more toward your savings goals, and ultimately reducing the amount of time you'll need to save.
Buch, Clarissa. "5 Ways to Save Money When You're On a Tight Budget." Doorsteps. Web. N.d. https://www.doorsteps.com/articles/ways-to-save-money-when-youre-on-a-tight-budget