Three Evergreen Tips On Saving Money

Piggy BankThe following has been contributed by a reader.

Who doesn’t like to save money? Unless you are a multimillionaire or a billionaire, chances are that you could use some money saving tips. So here are three evergreen tips on saving money.

Budget

The first step in making a budget is to know how much you spend. So, for a month, record every expense, however trivial – the newspaper, the snacks, the bills etc. Once you have the data, then organize the expenses into different categories such as the mortgage, gas and groceries. Then total each category.

After recording your expenses, you can now go ahead and create a budget to limit overspending and cut back on unnecessary expenditures. Remember to include expenses that occur regularly though not monthly, for example, car maintenance. From here you can set a percentage of your income that will go to savings. Financial wisdom demands that you save at least 15% of your monthly income. You can save more if you wish and are prudent.

Set Saving Goals

Having saving goals not only makes it easier to save but also motivates you to save more. Determine how long it will take to attain a set saving goal. You can categorize your saving goals into short-term goals (which usually range from a year to three years) and long-term goals, which take any amount of time above three years to achieve. Short-term goals may include, but are not limited to: saving to buy a car, starting an emergency fund that will cover between six months to one year of living expenses just in case you are laid off and saving for a vacation. Long-term saving goals, on the other hand, may include: saving for retirement, saving to buy a house, saving for children’s college fees or saving for a major business investment.

On saving goals, ensure you set priorities. Decide which saving goals are most important to you, how long you’d want to save for a particular goal and how much you are willing to put away per month in order to attain your goals. If your priority is saving for retirement, then other goals might enjoy less preference as you work to ensure you reach your retirement goals.

Depending on the nature of your savings objective, there are different savings and investment strategies suited for each. For example, if you are grappling with a short-term savings goal, you might prefer using a regular savings account because it is easily accessible or a certificate of deposit account, which locks your money for a certain time at a set interest rate. If it is a long-term goal, then you might consider using riskier investments such as mutual funds because they are commonly used to invest for long term.

Unfortunately, you should be prepared for some unforeseen emergencies that can distract you from reaching your financial goals. However, it is rare anyone prepares for the worst unforeseen emergencies, including divorce and bankruptcy.

Exercise Financial Fidelity

The primary reason for many financial problems is lack of financial discipline or the inability to delay gratification in the short term. So many people associate happiness with spending money to purchase wares they might not need. It is a somewhat a reflex action but you should practice on how to suppress your urges.

Financial fidelity requires you use your savings for the goal to which they were kept. For example, it is discouraging and imprudent to save for a car for three years then buy jewelry instead. It demoralizes you once you realize the blunder and you might not be as effective in saving again. Note that once you give in to a single impulsive indiscretion, then you open floodgates for more. Through and through, ensure you practice financial fidelity. Don’t spend what you don’t have as that is wont to increase your financial burden by accumulating debts.

If you are in business, financial fidelity demands you plan ahead. In case you run into an economic landmine that will blow up the assets of your business, then protect your valuable assets by considering a Scottsdale Bankruptcy Attorney. The Canterbury Law Group has among many other things, specialized in bankruptcy matters and can protect your assets just in case.

No one can foresee the future, but by practicing the three actions above you will be in much better shape than those who don’t.

photo by: 401(K) 2013

Prudential Experiments Explain Our Money Habits

This post has been made possible by Prudential.

Below is a video player that can show five different videos, all provided by Prudential. They show some pretty neat concepts that relate to how we deal with our money and retirement from a mental perspective. Simply hit refresh to change the video. Below the video player is a description of the five videos if you cannot watch them for whatever reason. Enjoy!

In one video titled “An Experiment in Decision Paralysis” Prudential shows how having more choices available to you can lead to decision paralysis. They explain this through two scenarios, one involving choosing a cupcake flavor and another where they ask people to sort a bag of stuffed animals with no further guidance. The many solutions frustrate the people participating in the stuffed animal task and they give up.

Prudential goes on to explain that people who have more 401(k) investment options often have the same frustration in picking out investments for their retirement accounts. That’s why Prudential came up with Day One funds which are funds designed to help you prepare for day one of retirement.

In another video titled “Prudential – Overcoming Temptation” a recreation of the marshmallow experiment is shown. Kids are set in a room by themselves with a marshmallow and are told if they wait and don’t eat the first marshmallow until an instructor comes back they can have two marshmallows instead. Patience is hard, as evidenced by the experiment, and that is one reason many of us have not yet saved enough for retirement.

In a separate video titled “Episode 1: Your Future Self” Prudential explains that your brain sees your future self as a stranger, which makes it difficult to set money aside for retirement for your future self. They ran an experiment where people were guided through thinking about their future retired selves for one hour. After the hour, 75% of the group said they would save more for retirement. Take some time to think of your future retired self and maybe it will help you to increase your retirement contributions.

In another video titled “Episode 2: I’ll Do It Later” Prudential shows us a trick to help us get financial tasks done. An experiment is performed on two groups of people. Both are given a set of tedious tasks to perform. Once completed, half of the group is given a break while the other half is asked immediately if they want to perform the second set of tasks now or later. One third of the people in the second group took the second set of tasks home to complete later.

After the first group returned from their break, they were given the same option to complete the second group of tasks immediately or to take them home and do them later. Every person in the first group stayed and completed the tasks. You can use this trick to help you get your financial tasks done. Just simply schedule a break first so you have enough willpower to get through your financial tasks.

In the final video titled “Episode 3: The Pain of Saving” Prudential shows us that our brain registers the loss of money the same way it registers physical pain. Our brain also associates saving for retirement as losing money, triggering the same feelings of pain. However, the brain associates finding money with pleasure. If you’re having problems saving for retirement, think about all of the money you will find when you retire if you put away money now. The positive feeling of finding money in retirement later should help you overcome the pain of saving money today.