Can you guess our favorite S-word yet?🙃
It’s saving, of course.
This SPOTLIGHT continues the series of articles on budgeting and building your savings fund. In case you’ve missed our earlier articles, here they are:
Check them out to discover some easy money-saving challenges and learn the difference between saving and investing.
In this SPOTLIGHT, we will explain:
- How to cut your monthly expenses
- How to automate your savings
- How to protect your savings fund from inflation
So let’s start.
3 monthly expenses you can cut smoothly
It's really quite simple.
Keeping track of your checking account is one of the easiest money management tactics you can use. All you have to do is create a budget list or use a budgeting app to follow your recurring expenses that pop up during the month and then compare your total spending to your total earnings.
If there’s no room for savings, re-evaluate your expenses by dividing them into essentials (e.g. monthly bills) and extras (e.g. streaming services).
Even though it seems obvious, some little expenses are really the biggest contributors to unwise spending.
Here are several expense categories you can easily cut back on:
Saving tip #1: How to save money on groceries?
We all know that grocery stores use some sneaky tricks to make us spend money mindlessly. Yet we sometimes fall for them.
To save yourself from impulse buying, make a grocery list before going to the store or shopping online. This way, you should be able to stick to your budget.
When you're at the store, skip the checkout aisle loaded with candy bars, sugary drinks, or chips you've been craving for. Your wallet will thank you.👛
If you are shopping online, another way to avoid impulse purchases is to follow a simple rule: wait 24 hours before buying.
You may realize you don't really need that item. When that happens, you can put the money you’ve saved into a savings account and feel good about yourself.
Saving tip #2: How to avoid buying lunch every day
You’ve probably heard this advice before: if you want to save money, stop eating out.
Let's be honest, we've all tried, but sticking to it isn't easy, especially with all the food delivery apps out there.
But here are some numbers that will show you how much money you can save by cooking at home.
- The average American household spends about $3,000 a year dining out, according to the Bureau of Labor Statistics.
- Each year, millennials spend around $2,240 at the grocery store and $1,670 dining out, according to a survey by food producer Sweet Earth Foods.
Imagine you go out for lunch Monday through Friday, spending $10 a meal. Looks like a good deal, right? In reality, you'll end up spending as much as $2,500 a year on this relatively "cheap" lunch.😯
So start preparing meals at home to save several hundred euros or dollars per month.
Saving tip #3: How to make yourself cancel streaming services and other unused subscriptions?
Many of us have a habit of signing up for that 30-day free trial and then forgetting to cancel it.
But do you really get your money's worth from the streaming service you subscribed to or the gym membership you got after your summer break?
If you want to save money, check your bank account statements to see what services, software, or magazines you're paying for.
If you haven't used them for a while, cancel them on the spot! Done? You might have just saved yourself a couple of hundred euros or dollars a year.
Of course, there are other things you can cut from your budget. In any case, these three savings tips will help you save some money for an emergency fund or a savings account.
Automate your savings
Saving for retirement, a house, or an emergency fund is not an easy thing to do. This explains why around 40% of Americans have less than $400 on hand for emergencies.
So if you want to avoid that pitfall and start saving more, you can stick to one simple rule: put your saving plan on autopilot. How can you automate your savings?
One way is to set up an automatic transfer from your checking account to your savings account. Each month, money from your paycheck will land in the savings account.
For example, if you transfer $400 every month, you’ll end up with almost $5,000 in your savings account by the end of the year.
💡Did you know?
Millennials are less likely to be homeowners: in 2020, a report from Apartment List showed that among millennials who plan to buy a home, 63% have no money saved for a down payment.
So, here’s our extra savings tip: if you have any money left in your checking account at the end of the month, transfer it straight to your savings account. Even if it’s a small amount.
Let’s say you have $200 in your bank account. It's tempting to spend it on something fun, isn't it? But if that money is put in your savings account, there's zero temptation.
What inflation means for your personal finance and savings account
If you decide to keep all your savings in a checking account or in a savings account, there’s one thing you should be aware of: the cost of inflation.
You’ve probably heard that inflation has been rising and is here to stay for some time. The thing is, inflation is eating away a large chunk of consumers' purchasing power, affecting the most common products, from eggs to gasoline.
And what about money sitting in a savings account, is it safe? Not from inflation.
Let’s say you put your money in a savings account that pays you interest at 2%. This means that, a year later, you’ll have 2% more money. If inflation is more than 2%, although you’ve got more money, you can buy less compared to the year before.
And the longer inflation lasts, the biggest implications this will have on your savings goals, such as saving for retirement or buying a house.
That’s why it’s important to pay attention to the inflation rate when you want to start saving money. In other words, you have to find an asset that can protect the money you save each month from inflation.
Back up your savings with an inflation-proof asset
When it comes to saving and protecting your wealth, it’s always good to spread your money around and back it up with more stable assets.
That’s where physical gold can help. The price of gold is measured with currencies. That’s why, when rising inflation drives up prices and lowers the purchasing power of cash, the price of gold usually goes up.
For this reason, gold has historically been a safe haven of choice when paper money starts losing its value.
💡Did you know?
A safe haven is an asset that is expected to retain its value (or even increase in value) during times of inflation and market turbulence.
Here’s an example with $35 and an ounce of gold:
In the early 1960s, they would both buy you a well-tailored suit.
Today, your $35 could maybe get you... a good pair of socks. With your ounce of gold now priced at $1,800, you can still buy yourself a nice suit with quite a bit of spare change.
In short, while an ounce of gold has kept its value, the purchasing power of the U.S. dollar has fallen significantly over time, mostly due to inflation and massive money printing.
That means the money in your bank account has lost some value too.
How to save money each month: the wrap-up
How to save money for a house, your retirement, or your next vacation? Whatever your purpose, there’re a few tricks you can use to save money each month and achieve your savings goals:
- Learn how to save on groceries, spend wisely when shopping online and do cutbacks on unnecessary expenses, such as unused streaming services. Soon after, you’ll start to save each month.
- Spread your money around instead of keeping all your savings in a checking account or a savings account. In both cases, a significant chunk of it will most likely be taken away by inflation.
That’s why it may be a good idea to keep some or most of your hard-earned savings in physical gold and precious metals.⭐