Americans struggle to save money. That is an undeniable fact. Whether because of low income, frivolous purchases, outstanding debt, or a combination of all three, saving money is hard for a significant portion of the population. Yet it is critical for financial health and wellness.
While saving money can be difficult for some due to mitigating circumstances, understanding how to save money is not so complex. In fact it is relatively easy! If you have always wanted to start your own personal savings account or are just curious about best practices when it comes to saving, these are the basics you need to know.
American Savings Crisis
To jump back to a previous point, America is in a savings crisis. Not only do Americans have minimal savings, they also are intimidated at the thought of saving money. Establishing a savings account and learning how to save money, meanwhile, is crucial. That is why you could consider the United States to be in a savings crisis, especially when you look at the numbers in-depth.
Most American households are in trouble if there are any unexpected expenses. Savings rates have fallen dramatically over the past few decades. This is highlighted by the presumption that most Americans would not have enough money to cover an unexpected or emergency expense upwards of $500. While that is no small amount of money, it does show just how low an emphasis Americans put on savings in the present day.
Why is this happening? There are many reasons.
Americans like to spend money. We are easily influenced by marketing efforts and always chasing the next big thing. Rather than save for the future, we buy in the present and satiate our impulsive desires.
When you consider stagnant wages, things get even worse. This not only depletes the amount Americans could put into savings but often brings with it increasing debt.
Debt is usually not good, and it is even worse for savings. Whether student, medical, credit card, or some other form of debt, Americans are surrounded. This debt comes with high interest rates, fees, and other charges that compound the problem of both debt and a lack of savings.
To pay down debt is one of the first steps in establishing a proper savings account. While it may seem nice to set aside some money in the present, debt should be taken care of first. If you need to find a way to consolidate your debt or find a card that will help you to pay down debt. Doing so will help you manage your debt appropriately and get you on the right track to saving money.
Now that you're interested in saving money it's time to find a way to do so. And though establishing savings is all about money in vs. money out, it is a bit more complex than that.
You need to find ways to manage all of your income and expenses appropriately so you can still live a decent life while building your savings. Drastically changing who you are or restricting your finances often creates unnecessary stress and worry. That's why the 50/30/20 rule is so popular among those who want to save money.
The 50/30/20 rule is easy to understand. It dedicates a percentage of your income to different categories so you can cover necessary living costs, luxury purchases, and save money.
Per the rule, 50 percent of your income should be for necessary living costs and essentials. These include food, housing and utilities.
The next 30 percent of your income can be put towards luxury purchases and other forms of discretionary spending. Whether a few premium services, a night out or two or a quick vacation, you should not deprive yourself of what makes you happy in order to save some money.
The final 20 percent when using the 50/30/20 rule should be dedicated towards savings. This is a minimum recommendation. If you would like to save more, do it! Simply spend less as part of your discretionary income.
The 50/30/20 rule is an easy method that makes savings less intimidating. You'll still need to separate your expenses into a couple of categories (necessary vs. frivolous), but doing so will only provide you with greater financial clarity and peace of mind. It is a proven method of saving money that should be considered in all cases.
Consider What You're Saving For
When you decide to establish a savings account or start saving money you should do so with a goal or two in mind. While building your savings is important, it is also important to know why you are doing so. Is it to cover emergency expenses? Are you setting aside a little to cover an anticipated cost in the future (such as a vacation, new car, house, etc.)? Do you just want to take a month or two off from work in the future without worry?
Whatever the reason you should always know why you want to save money.
A simple way to lay this out is to consider the following question: what will it take to sustain the lifestyle you would like to pursue? Answering that question with a number in mind will help you visualize what you need to do to get there.
Let's Get Saving
You are unique. That's why you don't have do be just another statistic or average American. You don't have to be lost in the dark when it comes to savings or not have any money saved.
You have shown interest in learning how to save money, have read about why Americans struggle with savings, know a strategy for saving money, and can find motivation to keep you saving. With all this in mind you no longer have to view savings as intimidating or unattainable. Saving money is simple and critical. It's about time you get started.