Received Your First Paycheck? Savings Tips for Beginners
You should not put off thinking about saving money for later in life. It is a very important and, more importantly, powerful tool that can make you financially independent when you retire.
Learning how to save effectively can help you achieve short-term goals while securing your long-term financial future. All you need is discipline, planning, and a few simple tips.
Effective Tips For Saving Money Beginners
Saving money can mean different things to different people. Some want to save for retirement, while others might want to save up to buy their dream car.
Regardless of why you want to save money, it is a great habit. Here are some tips to save money effectively, even for a beginner.
Know Where Your Money Is Going
The first step to start saving is to know where your money is going. Therefore recording your expenses is very important. You should record all your expenses – even the trivial ones.
This includes every tip you give at a restaurant, every cup of tea, monthly bills, and more. Having a record of all your expenses helps you plan better.
Recording your expenses and budgeting does not have to be tedious either. Feature-rich tools like calcopolis.com give you the power of budgeting and saving right at your fingertips.
Have Clearly Defined Goals
Goals can be both short-term and long-term. A plan is very important if you want to be proactive about saving money. A short-term goal could be saving money for a new car.
In contrast, a long-term goal could be saving money for when you retire. We get it – receiving your first paycheck is very exciting. You want to do everything you want with it. Buy your parents something nice, and take your partner out to dinner. Or splurge on yourself a little bit.
While that is fine, you need to have a goal and a plan. Otherwise, you will not be consistent with your money habits. Having a goal helps you prioritize. For example, understanding your retirement expenses will help you to save proactively for when that time comes.
Cut Down On Spending
Sometimes simply saving is not enough. If you are on a fixed monthly income, you might find yourself in a position where you cannot save as much as you would like.
This is when it is time to cut back on spending. Try to cut non-essential expenditures like paying for services you do not use that much, unnecessary entertainment, or always eating out. There are so many more benefits of cooking instead of eating out.
You can find free entertainment alternatives or use shared streaming services plans. A little bit of savings by cutting expenses here and there can add up to quite a bit in the long run.
Learn How to Budget and Manage Savings
Learning to budget and save is a skill. One that you can get better at. You would think that it is a natural thing. However, many people might not know how to budget properly.
Start with tracking your expenses, as we mentioned earlier. You should also separate your fixed expenses from variable ones. Managing variable expenses can save a lot of money.
Moreover, if you can cut down on some fixed expenses, you will save quite a bit of money in the long run. The 50/30/20 rule is a powerful budgeting tactic.
You spend 50% of your income on your needs. These are essential costs like bills and rent. Then 30% of your income should go towards your variable expenses and wants.
However, remember that you can also control this. Just because you allocated 30% of your income to variable expenses does not mean you spent all 30%. Lastly, 20% of your income goes directly to your savings account.
Work Towards Being Debt Free
Your debt is the biggest factor that can hold you back financially. As a result, you should pay off your debts as early as possible. When you are debt free, you will have more money to save (and spend).
You can use the debt snowball method to pay off debt. In a debt snowball method, you pay off your smallest debt as quickly as possible. Once that is paid off, you start paying off the second smallest debt. And you do this till you are completely debt free. So, you will pay off your largest debt last in a debt snowball method.
On the other hand, there is another method called the avalanche method. You pay off the biggest debt with the highest interest rate first. Then focus on paying off the second highest when the first is paid off.
However, if the principal amount of your high-interest debt is large, paying it off can be tough. It also makes it difficult to be consistent. Understanding these two methods better will help you decide for yourself.
Automate Your Savings
Automating your savings allows you to not think about it. Many banks and financial services will enable you to split your income into different accounts automatically.
You can set your account so that 20% of it automatically goes to your savings account once you receive your paycheck. This way, you will avoid the urge to spend money that you were supposed to save.
Should You Save or Invest?
A very important question you should ask yourself early is whether to save or invest. These two are very different things. Saving is setting aside money, commonly in saving institutions for use in the future.
In contrast, investing is when you use your money to earn more. You are essentially putting your money to work. And over time, this can increase your wealth significantly. However, investing comes with inherent risks.
Both saving and investing have pros and cons. Saving can give you more short-term cash and also helps build your emergency funds. However, it has lower yields than investing.
Investing gives you higher returns and helps you achieve your long-term financial goals. But it is risky, and you can lose money in the short term.
Your first paycheck is going to feel exciting. It is okay to enjoy and splurge a little bit. You worked so hard for this, after all. But you also need to understand that learning to save is very important.
All the beginner-friendly saving tips we mentioned will help you achieve your short-term financial goals and save up for retirement and old age. You can secure your long-term financial future by learning how to save properly.