How To Start Saving Money
At Millennial Economics, we believe that learning how to save your money plays a crucial role in your financial journey. In this article, we will discuss how to save your money in 2021.
Why Should I Save My Money?
Before discussing how to save, let’s first talk about why saving is important. People tend to have different ideas about saving. Some people were told from a young age to save for a rainy day and they have a hard time ever doing anything else with their money like saving and investing. Some people struggle with delayed gratification and live paycheck to paycheck with no savings at all. As with most things, finding balance in your financial strategy will be beneficial to you.
Learning how to save your money can be valuable for many reasons. Saving can provide you with a safety net in case of an emergency situation, it can allow you to make a big purchase or a large investment like buying a home, and it gives you “opportunity freedom”. Opportunity freedom is the ability to capitalize on a great situation because you have the money to do so. This could look like someone on your street needing to move abruptly and them selling their home to you for pennies on the dollar. It could also look like getting a great deal on a used vehicle because you have the cash to purchase one outright.
At Millennial Economics, we believe it is wise to keep 3-6 months worth of expenses in an emergency fund. This is the baseline of what you will need to save, and it is only to be used for, you guessed it, an emergency.
According to Forbes.com, 63% of Americans don’t have enough in savings to cover a $500 emergency. No wonder we are all stressed over money! What happens if your car breaks down? What happens if your furnace goes out? These types of emergencies dig people into large financial holes, holes often associated with high interest debt. An emergency fund turns what would have been an emergency into an inconvenience.
Once you have established an emergency fund, collecting your money becomes fun. Maybe you decide to save up for your dream house. Maybe you start investing more aggressively. Maybe you start savings to start the business you have been wanting to establish for years. I can’t stress this enough, saving and having an emergency fund of 3-6 months worth of expenses will help you live more peacefully. That is worth its weight in gold.
How Should I Save My Money?
Now that we know why saving money is important, let’s discuss how you can start saving in 2021. Here is a list of some simple ways to get started:
Decrease Your Food Budget - For many, the amount you spend on food can be one of the largest expenditures you have every month. This can include groceries, but this line item on many people’s budget really starts to grow when it includes things like eating out or the occasional stop at the gas station for that energy drink and taquito you just couldn’t do without. Limiting the amount you spend eating out and shopping at budget friendly grocery stores can greatly decrease the amount you spend money on food.
Continued reading: How to Start Budgeting in 2021
Cancel Subscriptions - It seems like most companies these days have some sort of subscription model. Whether it is the streaming services you subscribe to or something as common as Amazon Prime, if you tally up the amount you spend on these every month you might be surprised. Start by making a list of all of your monthly subscriptions then cancel the ones you don’t use. After that, think about the ones you are willing to cancel to achieve the financial goals you have for yourself.
Educate Yourself - This one is often overlooked, but if you are trying to save money by either increasing the amount of money your bringing in or decreasing the amount you spend, investing in expanding your knowledge can prove worthwhile. Maybe you take a class to learn a new skill you can use to pull in some extra income, or maybe you take a class on personal finance to become more financially literate.
Get a Second Job - This one is pretty self explanatory, but if you aren’t afraid of a little hard work, getting a second job is a great option. There are many places you can work in the evening and on the weekends that will help increase your monthly income and get you well on your way to hitting your saving goals. Particularly if you are single and have the free time to allocate to it, getting a second job could be a great option for you.
Start a Side Hustle - For many of the same reasons that getting a second job could be a good fit, starting a side hustle might be a great choice for you. Think of the things at this stage in your financial journey that don’t take a lot of capital to start. At this point, the asset that you have is time and sweat equity. Use those things to start making money for yourself. Maybe you start a lawn company by handing out flyers to all the houses on your street. Maybe you take up woodworking because you have a garage full of tools you are handy with. The sky is the limit here, and a major benefit of starting a side hustle is that it can turn into a long term asset for you in the future.
Sell Your Vehicle - The average car payment in America is $563. Having an expensive vehicle with a large car payment seems to be the norm for many. If you find yourself living paycheck to paycheck, selling your vehicle and downsizing to something less expensive can be a great way to free up funds to allocate towards saving. It is not always easy to downsize your vehicle, especially if you owe more on your vehicle than it is worth, but this is an option worth exploring.
7. Get Creative With Your Housing - For many, especially those of you with children, getting too creative with your housing might be difficult, but if you find yourself with the ability to do so it could be a great option for you. Maybe you get a roommate to offset your rent or mortgage. Maybe you find a way to purchase a duplex then live in one unit and rent out the other. Considering listing a room on Airbnb might be a good option for you. There are many creative ways to offset the cost of your housing. One of them might be a good fit for you.
There are many ways to increase your income and cut your expenses. I would encourage you to explore them all and find the ones that are a good fit for you. Learning how to save money to make “margin” each month can be an art. One very important thing to remember is that you must be on a budget every month to be most effective in your savings efforts. Planning in this way will ensure you are telling every dollar what responsibility it has and where it should go.
Where Should I Save My Money?
Now that we understand how to create “margin” each month we need to learn where we should be saving our money.
A High Yield Savings Account - This option is my personal favorite. A high yield savings account is typically a savings account held by an online bank that pays an interest rate on the money you hold there that is far higher than your typical savings account. Currently, these accounts have around a 0.50% interest rate. These rates vary from bank to bank and can change over time. A high yield savings account acts very similarly to a regular saving account at your local bank or credit union. You deposit money into it and it slowly grows over time. The interest rates most high yield savings accounts have will not make you rich, but the interest paid will be better than what you can find at a traditional bank, which is typically 0.01%. I also like that often your money is a bit harder to access in a high yield savings account. At your bank, you can simply log into your bank’s app and transfer funds to your checking account for spending. Typically with a high savings account, it will take a day or so for money to be transferred out of the account and into your bank account. This delay in funding forces me to think through my reasoning for accessing my savings.
My personal favorite high yield savings account is one offered by Yotta. Yotta is an online platform that has gamified the savings process. They offer weekly drawings for everyone who holds money in their account with them. These weekly prizes scale all the way to things like a tesla or $10,000,000. The account your money is held in is FDIC insured so you can be sure it is safe, and it really makes the savings process fun and engaging.
You can read my review on Yotta here: Yotta Savings Review 2021
You can sign up for Yotta here - ***Use code MILLENNIAL when signing up to receive 100 free tickets***":Your Local Bank or Credit Union - This is self-explanatory, but your local bank or credit union will offer a savings account you can keep your money in. The benefits of saving with a bank or credit union are that your funds will typically be FDIC insured up to $250,000, and you will have the ease of using your bank’s app to quickly transfer money to your account from your checking account. The downside here is that most banks pay an interest rate of around 0.01%.
Where Should I Not Save My Money
Your Brokerage Account - It is not advisable to invest money when you are going to need it in less than five years. It is also not advisable to hold your emergency fund in an investment account. With any investment there is risk, and if you are saving for a downpayment for a house and you think you can do it in 1 - 2 years, the risk of losing some of that money is far too great for the potential gain you could see in the 1-2 years of holding the investment. Keep your emergency fund and short term savings in an account that is FDIC insured like a high yield savings account.
Under Your Mattress - Keeping your money saved at your home is not advisable and also opens you up to too much risk. This doens’t seem to be a common mistake for many, but keeping large amounts of cash in your home opens you to the risk of theft among other things. You will also be missing out on the interest you could be gaining in a high yield savings account. In fact, if you save your money this way your money is becoming less valuable over time due to inflation.
3. Anywhere Illiquid - Liquidity is the emergency fund’s best friend. If an emergency did happen, like a car repair or something medical, you want your money to be available quickly and easily. Keeping your savings anywhere that prevents you from either of those things isn’t a good idea.
I hope you have learned a bit about how to save your money in 2021. Establishing an emergency fund and saving for wise purchases plays a big role in becoming financially successful. It can also be a fun way to achieve some of your goals and tangibly see your progress. I hope you find great success in your savings journey!
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