Attaining Financial Freedom Part 5 – How to Develop a Savings Culture

No matter how much you earn, you must save money to be financially free. Attaining financial freedom depends more on how you manage your money than how much you make. There are people who have made millions of dollars at a point in time, and they still end up being broke. There are also low earners who have saved and invested their way  into financial freedom. So, it is just about money management.

The most important money management tip is to spend less than you earn and save and invest the rest. Saving money has numerous benefits including financial security, opportunity for investment and  avoiding debt. A very common pitfall is to delay savings till you start earning more money, and oftentimes, more money comes with more expenses. Your money grows exponentially over time due to compounding. So, the earlier you start saving, the better.

Set aside a certain amount or percentage of your income as savings every time you earn money.  It is recommended that everyone should have at least 3-6 months of expenses in an emergency savings account. If you ever lose your income, you can have something to live on. Apart from emergency savings, you also need to save for other purposes like retirement, college tuition , big expenses, and other purposes. The following steps will help in developing a savings culture.

Open a savings account: The first place to get started is to open a savings account if you don’t already have one. It’s not a good idea to save in the same account tied to the debit card you use daily. You need to have a separate account that you will not dip into at random. There is a good chance your bank will offer a savings account that is easy to manage. Some banks have monthly maintenance fees, excessive withdrawal fees, wire transfer fee and minimum balance fee if your balance falls below a certain threshold. While many of these fees are common with brick-and-mortal banks, online banks tend to waive or eliminate the fees completely. So, make sure you do the necessary research and inquire about all the necessary terms and conditions of the savings account before you open it. It is also important to make sure that your savings account earns a good interest rate that aligns with your financial goals.

Automate savings: Link your checking or salary account to the savings account and schedule an automatic transfer to your savings account. Don’t trust yourself to always remember to transfer money every paycheck. Sometimes, you will forget. Sometimes, you will be tempted to transfer less money than you initially planned. However, when you automate your savings, the money will be transferred at predetermined intervals without any action from you. This is easier if your checking and savings account are with the same bank, although many banks will let you schedule transfers to external accounts. When it is feasible, make sure you transfer money to your savings account every time you get paid. Consistency matters a lot! However, that may not be feasible for everyone. If your first pay of the month goes into house rent or mortgage, you may only be able to save once in a month, when you get your second paycheck. Figure out what interval works for you and stick to it. You may want to review your savings rules regularly and make changes as necessary.

Set savings goals: Define the specific goal you want to achieve whether it is saving for an upcoming expense like vacation, for retirement or for any other purposes. Then, start saving towards the goal. You may need to break down your goals into smaller milestones. Remember to always celebrate each milestone you achieve. Many savings accounts have tools for creating and tracking savings goals. You can see a visual representation of your savings progress. If your savings account does not have that capability, a simple Excel or Google Spreadsheet will suffice. Seeing your progress can motivate you to continue saving.

Be disciplined: For savings to work out well for you, you must be disciplined. What’s the purpose of saving today, and depleting the savings tomorrow? You must restrain yourself from dipping into your savings unless it’s absolutely necessary to do so.

Cut down expenses: If you have a fixed income,  you  may want to find a way to cut down your expenses to save more money.

Remember, every dollar saved contributes to your financial well-being. Start today, even if it’s a small amount. Your future self will thank you!