Do you have problems with paying your bills every month? Do you have no idea how to save money? In this blog I will tell you everything about how to start saving money. Even when you have none! What are the best ways to save money every month? In 8 easy steps I will help you to start saving money today.
Why do you need to save money?
It is important to save money, because in this way you can ensure that you build up a carefree future. A lot of people have no idea how to deal with budgets and saving money. Because of this, they live from paycheck to paycheck every month. Every month they struggle to pay the bills or even going into debt. You recognize this? By not putting money aside and saving money you never get out of this situation. By starting with saving money you can get out of this rat race and work towards financial freedom.
Step 1: Know your income and your expenses
Before thinking about saving or even investing money, you have to know what your income is and what your expenses are. You can do this by setting up a budget, so you can manage your money.
Open up a spreadsheet and make a list of all your existing expenses. Think of mortgage, rent, car payments, gas, transportation, credit cards, memberships, groceries, phone and internet costs etc. Try to categorize all your expenses and go back several months so you can see any patterns of spending. Now you have an overview of all your expenses and this can be a eye opener for a lot of people. Now you realize how much money you are spending every month.
Now you can make a list of all your income, for most people, this is just your job. But this can also be a side business, passive income streams, investments or thinks like rent benefit or care benefit.
Now you will know what your expenses are and what your income is. Budgeting your money is very simple now.
Step 2: Make sure your income is higher than your expenses
That’s right, it’s that simple! If your income is higher than your expenses you will have a positive cash flow. This will allow you to save money for the future. If your income is lower than your expenses, you will have a problem. At this moment you can’t save money. But we can work on that!
Step 3: Set up a budget for saving money
If your expenses are higher than your income you need to set up a budget. You can do this by determining for yourself how much money you want to save each month. This number is different for everyone, but I advise starting with at least 10% of your net income. If this does not work in the beginning, no problem, but try to work towards it. If you manage to save 10% of your net income, try to work towards 15%. Set yourself a goal every time, in order to save as much money as possible.
If you can save 10% of your net income, without getting into negative cash flow, great! You can now start working towards financial freedom. If you can’t save money without getting into negative cash flow, you have to look at your expenses.
Step 4: Look at your expenses
Looking at your expenses is necessary if you have a negative cash flow (expenses are higher than your income), but is also useful if you have a positive cash flow. Try to look for expenses that are not necessary or can be reduced. Maybe you have a gym membership, but you are never going to the gym. Maybe you see that you are spending a lot of money on eating out. Try to cut on these expenses as well.
Be critical of all your expenses and decide for yourself which expenses are really needed and which expenses can go less or even go away. If you want to work towards financial freedom and you are in a negative cash flow, do you really need that Netflix or Spotify subscription?
Step 5: Open up a savings account
You made a list of your income and your expenses, you have a positive cash flow, you know how much money you want to save every month and now what? It’s time to open up a savings account. I recommend opening a savings account at a different bank than your regular bank account. This way your saved money is not as easy to access as if it’s at your regular bank account. By putting the money away on a separate savings account you are less inclined to use this money. In addition, you generally get more interest in a savings account than on a bank account, although the savings rate in the Netherlands is at a remarkably low level.
Nevertheless, I advise you to open a savings account, deposit the money here monthly and leave it alone. So you can finally start saving money.
Step 6: Pay yourself first and automate
I really have to confess something to you … I do not really like saving money. That is why I make sure that this process is as painless and fast as possible. I do this by paying myself first and by automating this process. What does this mean? Well, as soon as I receive my salary on my bank account, a certain percentage (at least 10% recommended) is automatically deducted from my savings account. I do not even notice this! Because this happens immediately as soon as I receive my salary, it is as if I just receive less income. In one way or another, this is less painful than when I have to transfer an amount to my savings account myself. And thus I save money easily, quickly and painlessly!
Another advantage of paying yourself first is that you will probably save more money than if you first paid all your bills and then save the amount that remains. You will probably spend so much that a much lower amount is left to save. So my big tip is: pay yourself first and automate this process.
Step 7: Make a emergency fund
Now that you transfer money to a savings account every month, it is good to think about a so-called emergency fund. An emergency fund is an emergency savings account that you will only use in case of emergency. For example when you are fired from work or when your car is broken and you have to buy a new car.
By building an emergency fund you will be able to live a lot more relaxed. You then have the buffer for when heavy times arrive and this causes less stress. That is why, if you start saving money, I recommend that you build up your emergency fund first. Once you have done this, you can open a new savings account, which will apply as a general savings account. This way you keep your emergency fund savings account and your general savings account separate, so that you can always fall back on your emergency fund.
Then, of course, the question is: How much money does your emergency fund need? The answer to that question is: That depends. Do you have your own house and a second-hand car that you know does not last very long? Then you need a larger emergency fund than when you rent a house and you lease a car.
I work with an emergency fund of € 5,000. This is because I currently rent a house and lease a car. Because of this, I do not expect to get a lot of high costs and with € 5,000 I can catch the worst blows. Determine for yourself what is necessary, but build at least an emergency fund of € 1,000. In addition, it is important to replenish your emergency fund right away if you have used money here. In the future, you will always be prepared for unforeseen costs.
Step 8: Work towards financial freedom and enjoy!
And that’s it! These are all necessary steps to start saving money for the future. By following these steps you can start working towards financial freedom. How much money you save every month: every amount counts. Eventually, you save money and you do it much better than the average person who still lives from paycheck to paycheck. Enjoy the process, saving money can also be fun! By automating the process and paying yourself first you will notice that it is not bad to save money. Especially after a while, you will notice that a considerable amount has already been saved and you are proud of yourself. You will experience less stress now that you know that you can cope with unforeseen costs and you have no trouble paying the bills every month. Enjoy the process!
After you have saved some money and build your emergency fund, it can be useful to look for ways to invest your money, so you can let your money work for you. My favorite way to invest my money is via index funds. I made a blog about index funds for beginners, so read that post if you are planning to start investing. See you next time!