A Better Way to Save Money

A Better Way to Save Money

Written by Caitlin Wood
Last Updated July 21, 2014

Here is the scenario: You’ve run out of a few personal necessities like toothpaste and laundry detergent so you head to Target or your local grocery store. While in the store you find the things you came for but also a bunch of other items, then you head to the check out just hoping the total isn’t too shocking. But of course you total is almost $200, you pay the amount and leave with your head down because you know you should have saved that money instead of spending it on things you really don’t need.

Does this sound familiar to you?

At the end of every month and even after every pay cheque you tell yourself that you need to save a least a little bit, but there’s never anything left to save.

Since your old way of saving money isn’t working for you, you need to learn a new and better way to save money while still having fun.

The Old Way: Save Whatever’s Left Over at the end of the Month

Most everyone approaches saving their money the same way, pay all the important things first like bills and rent. Then the money that is left is fair game for shopping, entertainment and going out. Once the end of the month arrives you start to think that you should save something, but you look at your balance and it’s practically zero.

Income – Bills – Money for fun things = Never being able to save any money.

This is exactly why it’s so hard for most people to save enough money; they’re going about it in a way that will probably never work for them. You’re setting yourself up for failure by telling yourself that you’ll save what’s left at the end of the month. You’re creating a vicious circle of immediate gratification and shame.

The New Way: Pay Yourself First

But don’t worry too much yet you can quickly and easily change your spending and saving habits right now and start achieve your financial goals this month. You simply need to “pay yourself first”, which means each month you should pay your savings account a certain amount before you spend any money on entertainment and fun things.

Income – Bills – Pay yourself savings = Left over guilt free money to spend on fun things.

Set up this payment to yourself to automatically happen at the same time every month, this way you won’t have to remember to do it or be able to skip a month. Basically you’re treating your savings account like another bill that needs to be paid each month.

Just like before, once you’ve paid all your bills (which now includes paying yourself) you can spend your left over money on things you want, shopping, nights out, entertainment or $200 bills at Target. It’s guilt free money that you’ve earned, you’ve worked hard to turn your finances around now spend as you please.

Just make sure that you don’t overdo the spending and put yourself into debt, you’re trying to be financially responsible.

How Much Should I Save?

The number you should ultimately aim for in somewhere in between 10-20%, it’s the amount that most financial experts say when asked the same question. You can divide the amount you decide on between your savings account and whatever other financial goals you’ve set for yourself.

But if you’re just starting out and you don’t quite make enough yet to save that much, start at whatever amount makes the most sense to you. Then, once you’ve established yourself at your job and have better control over your financial life increase the percentage you’re saving by 1% every couple of months. You’ll be saving your goal amount in no time.

Time to Take Action!

Now that we’ve outlined a new way for you to succeed at saving money you need to take action and apply what you’ve learned to your life and finances. This new way to save money is meant to allow you to succeed long term and alleviate the stress associated with saving money. So get out there and start saving. Make sure the amount you want to pay yourself is automatically deducted so you don’t have to remember, start small and work your way up to your goal amount and most importantly don’t feel guilty about spending the money you’ve set aside for fun things.

Caitlin Wood is the Editor-in-Chief at Loans Canada and specializes in personal finance. She is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. Caitlin has covered various subjects such as debt, credit, and loans. Her work has been published on Zoocasa, GoDaddy, and deBanked. She believes that education and knowledge are the two most important factors in the creation of healthy financial habits. She also believes that openly discussing money and credit, and the responsibilities that come with them can lead to better decisions and a greater sense of financial security.

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