How to Start Saving, a Beginners Guide
We are all wondering nowadays how we can save more money and use that to fund our dream of traveling the world (or really any dream). And as young, first time earners, understanding your money flow might be hard. You see all these tips online and might get overwhelmed. So I decided to break down some of my best saving tips to help you get started with creating your budget and laying out your goals.
Understand your income
My number one tip for anyone to start saving money is to truly understand what you are earning. A lot of people are not 100% aware of what they are earning and how they are spending their money. It is important to know what you have coming in every month. Especially if you have multiple streams of income every month.
There are many ways to keep track of your different sources of income, but my favorite way is just a simple excel or google sheets spreadsheet. This does not have to be some complex document that takes hours to fill in. Just a simple tracker to understand how much you are earning on a monthly basis.
If you want to start tracking your income: you can use this template
Budget your spending
Not only knowing how you earn, but also how you spend your money is very important. A lot of people can get carried away with how much they are spending and start tracking every dollar they spend. And if that is something you want to do, that is great! However, I tried this and started slacking after the first few months. It was so much upkeep and I was DONE.
Instead I think it is a lot better to know how much you have left after your monthly fixed expenses and work with that budget. And here is how you can do this.
Step 1: Write down how much you spend on different categories that are fixed:
Rent / Mortgage
Utilities (water, gas…)
Insurance (car, house, medical)
Debt payments (loans, credit cards, car…)
Subscriptions (netflix, apple storage…)
Other fixed expenses
Step 2: Once you know how much you earn, and how much you spend, you know what is left
So say you earn $2,000 every month, and have $1,200 of expenses each month, you will know that you have about $800 left to spend. This number is crucial to start budgeting.
From that $800 you now have to start thinking how much you want to keep in your spending account, and how much you want to save. So say you want to keep $400 for monthly spending (food, clothes, hanging out with friends, family or loved ones). Then you will know that you have $400 dollars that you can save.
That money that you decide to save NEEDS to GO to your savings account IMMEDIATELY when you receive it!
I always recommend you to save some of this for your future savings account (e.g. $200). Especially if you are in your early 20’ies. The other part ($200) you can put in another savings account (more on this later).
Cut out items you don’t need
Now that you have a general idea of what you are earning and spending every month you can look at those numbers and start to think about if you really should be spending this much money every month or if there are items that you can cut out so that your monthly saving amount can increase.
For example, if you go out and buy a $5 starbucks coffee every 3 days, that is 10 coffees a month or $50 which you could be saving if you were to just drink water, or make a coffee at home.
Or another example, say you are paying about $50 for cable and $15 for Netflix, but in reality, you only watch netflix shows, and occasionally watch a tv show. Is it really worth it to spend that extra $50 dollars on cable? Or can you just wait another day for the tv-show episode to come live online?
It is all about knowing where you are spending money, and cutting out things you didn't even realize you were spending so much money on.
Prioritize
Another thing I have heard over and over again is: How can you travel so much, I literally have NO money!! But then you see them flashing their Iphone 11 Pro and Balenciaga shoes around…
And there is nothing wrong with having the newest Iphone or spending a fortune on shoes, if that is your priority. But it is not mine. My priority is being able to buy a plane ticket whenever I have the urge to travel. And thus, I way rather keep my Iphone 8 until it breaks and spend that $1,000 I’d spend on a new phone, on a plane ticket to Mexico.
It is all about understanding where your priorities lay and spend within your means. If you do this, you will be able to do exactly what you want.
Separate Savings Account
In order to keep track of your saving and spending habits, I recommend opening different savings accounts for different things. I personally think you should have 2-3 saving accounts.
1 saving account for your future
1 saving account for your dream (for me this is travel, but it could be anything)
1 saving account as an emergency fund.
Also, if you only keep 1 debit and 1 credit card it is a lot easier to keep track of what you are spending and how much debt you have.
Bonus Tip: Stop asking for meaningless gifts!
How often have you been asked what you want for your birthday, christmas or other occasion, and not known the answer? Or even worse, how often have you gotten a gift that is just another thing you did not really need? Yes, I used to be the same.
But now I know what I want. I either ask my family and friends to give me some money so I can save for a future trip, or I ask them for some equipment that I would use on my travels.
