Saving Money: Why, How, when and How Much?

In these times of economic struggle, call it crisis, call it whatever you want, it is essential for us to acknowledge how to wisely administrate our money in order to ensure we are doing what is needed to protect ourselves for the future and maximize our income.

Maybe it's my academic background, being a CPA; my love for numbers, money management and the like; or my origins, being originally from a country with economic difficulties in South America, but I am one of those persons that need to make sure their finances are healthy and some economic support system is maintained. Or, in other terms, I consider saving money extremely important.

Why should I save?

Don't get me wrong, I'm not talking about being cheap or not enjoying money. I mean saving for your future, for any emergency, or just to ensure you will have the means when you have the needs.

And saving money is not only important as a personal matter, but also saving money in the appropriate way (meaning, keeping it within the financial system) multiplies the wealth. A dollar spent is a dollar spent, as a dollar in your pocket is still one dollar. In stead, a dollar in your savings account is a dollar you have in the bank, but at the same time is a dollar the bank can lend to someone else; thus, it's more than a dollar.

But we live in the United States of America, and while communism is a bad word in our dictionary, consuming is the way of life. We are constantly buying and spending, and creating needs for ourselves we actually don't have.

And people would go to extremes of spending.

The context

It is quite interesting being a foreigner from a country were purchasing power is way below the US, and the society acts towards consuming in a total different way.

When I first came to the US, I was quite shock to see that, when buying a car, for example, people would not even consider the total price, but rather just looked at the monthly payment! And that would not just end with buying a car, but houses as well!

I was also impressed with the debt levels people surrounding me were immerse in, not because they would not make enough money to leave a decent life, but rather because they would spend in anything they wanted, the flavor of the day, caring not on how much available money they would have.

So no wonder, when economy slows down as nowadays, people start worrying. Because too much people just don't know how to save money.

How do I get started?

Well, for starters, any personal financial advisor would tell you, you need to prepare a budget for yourself. Don't worry it's not that bad. You don't need anything complex, just look at how much you make on a month and that should tell you how much you can spend. That's easy, isn't it?

You will hear advisors talking about which percentage should be allocated to saving and how much to spending. The important thing here is taking one step at a time. You first need to realize that there are three types of expenses: the ones you need to do to live a decent life, the ones you want to do to enjoy your life and money, and the ones you absolutely don't need to do but do them anyway.

Rent or mortgage payments, along with utilities, food, education, transportation and certain clothing are in the first category. Most probably, you won't be able to cut on these. Just hope they are not higher than your income, because if they are, you need help and you need it fast.

Entertainment, fancy clothing, treats, and other similar are on the second group. While you don't need to cut them, you will find some saving opportunities here. If your income less you basic expenses is not higher or is not much higher than these expenses, then you should make an effort here.

Luxuries, buying things you will never use, throwing your money careless, etcetera, are in the third group. Ok, you can enjoy spending every once in a while, but definitively, you should cut almost every expenditure here. Unless you are making so much money it makes no difference at all. And even so.

Some people use those accounts that take the change by rounding your payments to the next dollar and put it on a separate savings account. I found that dull. It's your money, they are not giving you anything and then they tell you it's for free... no wonder it's for free. That's no saving. Saving is actually acknowledging you should put some money away for the future.

Let's put it this way. In stead of buying yourself whatever flashy item that crosses your path, why don't you hold on to that money and buy yourself some good quality stuff on six months or so? It's like not tipping $0.5 a person you see everyday for 20 days, and then giving him/her a $10 dollar tip. Wouldn't they appreciate it more?

Setting a budget

So set your monthly income budget. Then, figure out your actual spending, and finally adjust that to a spending budget that acknowledges your income reality.

Let's say, you receive monthly pay of $4,000

Less basic living ok expenses of say -$2,000,

Less living the good life expenses of -$1,500,

Less "I-am-Donald-Trump" expenses -$1,000.

You are starting short on a balance of -$500. You need to adjust that or your debt will increase every month.

Now, keep your monthly income fix; still at the $4,000

Less basic living expenses of an unchanged -$2,000,

Less a living good life adjusted expenses of -$1,400

Less a more reasonable obscene spending - $400.

The rest is your savings goal. In this case it's $200.

It's not that much, but it's not bad.

Sticking to your budget

The next step is a little bit harder. Words and numbers on paper look good, but then you need to stick to them.

You will need to monitor yourself to ensure you are complying with the goals. And that means controlling your expenditures since day one.

If you don't do so, then you just lost a lot of time. Just enjoy life carelessly and good luck when reality checks back.

Don't settle for your savings goal

The savings goal is a goal. But think of it as a minimum. You shouldn't just go and burn your money one month because it's the thirtieth and you already hit your savings goal. I mean, if you want to do that, feel free to contact me and I'll send you my PayPal account.

Put your money away

Your saving money should be a little out of reach. At least it should be in a separately savings account, or it would be wise to open any kind of investing account. If you keep it with your spending money, guess what? You will spend it. It's sort of contagious.

Wise move: put away your savings money as soon as you receive your paycheck (or any way you collect money), so it's already gone.

Closing the cycle

From time to time, just check if your budget, savings goal, and strategy continue to make sense. Maybe your situation changed, or you are making more or less money than before.

Just close the cycle starting all over again.

Final Thoughts

It may seem as a lot of work, or even as something complex, but it is not. You just need to realize it's on your best interest to plan your finances. And there are certainly too many unlucky citizens of the world with no means to live for us to be wasting money.

It's just as counting to three before answering a question, giving you some time to think on what you are going to say, on what you are going to do.

And remember, I'm not saying you should save money for the sake of it, or for the continuous future, so you will die and never enjoy it.

No, money was created to be spent. It is meant to be spent. But to be spent wisely.

Just remember: money doesn't buy happiness. It just buys things that make you happy.