Everyone knows the significance of having savings, but building those savings is another matter entirely.
Too often, consumers who want to save feel too burdened by financial obligation or simply have no clue where to begin. After all, a recent study declared that the average American owes $6,375 in credit card debt for a record combined national total of more than $1 trillion. And it’s even worse for student loans, which account for more than $1.5 trillion of Americans’ debt.
For many, the weight of paying off loans can seem too heavy to comfortably set aside money for a dedicated savings account. Still, a stable savings is necessary. Wondering how you can you do it? With proper budgeting and planning, it is possible. Here are a few tips on how to simultaneously accomplish both goals.
Set a strict budget: The only way you can ever pull off the delicate balancing act of loan payments and financial saving is if you first crunch the numbers. Take a close, objective look at your finances and be ruthless with yourself. If you tend to overindulge in dining out or splurging on online shopping, now’s a good time to put an end to (or severely reduce) that behavior. Begin by clearing away everything but your fixed expenses – yes, including loan payments – and slowly add in other variables. Once you do, you may be surprised at the financial flexibility you have right at your fingertips. Just be sure to leave room for your burgeoning savings.
Make saving a priority: Even though you might feel as if saving is the last thing you’re prepared to do, you need to try to integrate it into your lifestyle. Once you establish your household budget, your savings should be included as part of your non-negotiable expenses each month. Paying yourself first ensures that your savings doesn’t get lost in the shuffle amidst what may regularly seem like more important obligations. Sure, paying your bills and loans is essential, but if you’re serious about building a savings, you need to make it an undisputed part of your financial lifestyle. Consider it an investment in your own future. Because that’s exactly what it is.
Start small and automate: So, you’ve built a budget and have committed to saving on a regular basis. The next step is to decide how much you want (or are able) to save each month. You might be tempted to overdo it, but remember that emerging debt-free – especially with a significant savings – isn’t going to happen overnight. It’s the long game you’re playing here. Accordingly, it’s worthwhile to devote even a small amount to your savings, perhaps a percentage of what you find unaccounted for once you trim your variable expenses. Even starting with $100 each month will make a huge difference. Then set up automatic transfers to your savings account so that you don’t have to consider it every month. It’s now an intrinsic part of your financial routine.
Establish a plan of attack: To maximize efficiency, you’ll want to devise a smart way to whittle down your debt, starting with those loans that carry particularly high interest. Whatever you do, be sure to make all your payments on time, including those to your self-imposed savings, and if possible, aim to pay more than the minimum payment amounts for each loan. This will help you begin to chip away at the principal and make the repayment process that much faster. Moreover, any extra cash you acquire over the course of the year could go towards paying off your loans as well. Find a strategy that works for your needs.
Diversify your savings: Once you delve into the world of savings accounts, you may find yourself overwhelmed with options. For a multitude of reasons, it’s best to diversify your savings. What you want is to maintain some liquidity in your savings – in the event that you do need a little extra cash (but not too much, as this accessibility may undermine your long-term goals.) The bulk of your savings should be in interest-bearing accounts that will make the most of your investment. Likewise, explore whether your employer sponsors any retirement plans, as this too can help expand your ability to save.
Rely on goal-setting: As you dedicate a predetermined amount of your income to savings, you might struggle with sticking to your budget. That’s only natural. All lifestyle changes, especially financial ones, take a toll. But that’s why you need to set goals and find ways to motivate yourself. Setting financial goals such as saving six months’ worth of living expenses is admirable and will be especially effective if you find short-term ways to reward yourself. Whether that’s allowing yourself a luxury purchase when you hit a certain milestone or prioritizing particularly frustrating loans in your repayment cycle is up to you. Just find a way to make the process fun and rewarding.
The Perfect Balance
Although one could make a solid case for prioritizing either loan payments or building your savings, the real solution lies in finding a way to accomplish both simultaneously. Everywhere you look, you’re bound to find a million different takes on how best to achieve this, but we’re confident that our advice presents a broad enough approach to help you at least begin to build a strategy to work down your debt while building your savings up.
Don’t let the opportunity to liberate yourself from debt and prepare yourself for a more stable financial future escape you now.
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