How to save money?

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Saving money is easier said than done. Everyone knows that it is smart to save money in the long term, but many have problems with it. Saving means more than just spending less, though that’s a good challenge. Smart money savers also need to consider how to spend the money they have and how to increase their income. Start with Step 1 to learn how to set realistic goals, control spending, and get the best returns on your money over the long term.

How it goes

1: Pay yourself first. The easiest way to save money instead of spending it is to ensure that you have no opportunity to spend it.

By setting up a monthly standing order that transfers part of the salary to a savings account or retirement account, you avoid the stress and the hassle of having to decide each month how much you want to save and how much you need yourself. In principle, you save automatically and the money that remains can be spent as you like. Over time, even with small monthly amounts can make a whopping sum, especially if you also calculate the interest. So start as soon as possible to save as much as possible.

  • To set up a monthly standing order speak to the personnel department of your company or to your bank. If you provide the account information for an account that is not your salary account, setting up the standing order should not be a problem at all.
  • If, for whatever reason, you can not set up a standing order (for example, because you are self-employed or paid in cash), set an amount and pay it into your savings account on a monthly basis. Stick to the set amount.

2: Avoid accumulating new debts. It is often inevitable to have debt. Only very rich people have the opportunity to buy a house directly. Millions of others can only buy houses by mortgaging their house and repaying it slowly. Nevertheless, generally speaking, if you can avoid taking on debt, avoid it. Paying something directly is always cheaper than paying off an appropriate loan that accumulates interest over time.

  • If it is inevitable to take out a loan, try to pay as much as possible directly. The more you pay when you buy, the faster you will pay off the loan and the less interest you will have to pay.
  • Each person has their own financial situation, but many banks recommend that debt payments should be around 10% of income before tax deduction. Everything under 20% is still considered healthy. 36% is considered the upper limit for adequate debt repayment.

3: Create realistic savings goals. It is much easier to save if you have something for which you save. Create savings goals that are achievable to motivate you. So you can also make hard financial decisions responsibly. For big goals like buying a house or retiring from work, it can take years or decades to reach the goal. In these cases, it is important to follow the process regularly. Only if you take a step back you can see the whole picture and evaluate how far you have come and how much is missing to reach the goal.

  • Big goals like retreating from the job can take a long time to reach them. In the time needed to achieve these goals, it is very likely that the financial market has also changed. Sometimes it is necessary to do some research to predict the future situation of the financial markets in order to set a goal. For example, if you are in the prime income years, many financial experts believe you will need 60-85% of your current annual income to maintain your current living standard as a retiree.

4: Set a time frame for your goals. Setting ambitious (but realistic) time frames for your goals can be very motivating. For example, let’s say you want to start buying a house within two years. In this case, you would need to calculate the average price of the homes in your desired neighborhood and begin saving the first investment for your new home. In general, one can say that at least 20% of the total price of a house must be available as seed capital.

  • To stick with our example: if the house in your desired area costs around 300,000 €, you need at least 300,000 × 20% = 60,000 € within two years. Depending on your income, this may or may not be realistic.
  • Setting timeframes is especially important for important short-term goals. For example, if you need to repair your car but you do not have enough money at the moment, you will try to save that money as fast as possible to avoid making your way to work complicated. An ambitious but realistic schedule can help you achieve this goal.

5: Stick to your financial plan. It’s easy to design ambitious savings plans, but if you do not control them, it’s very difficult to achieve them. To keep your financial plan on course, plan your income at the beginning of the month. Put aside a part of the important and big expenses to the side so that no money is wasted. If you divide each salary payment in this way you get a good overview.

  • For example, with a salary of 100000 per month, we can set up the following financial plan:
  • Housing / appliances:  Rs.25,000
  • Loan:  Rs.25000
  • Food:  Rs.30000
  • Internet:  Rs.1000
  • Gasoline: Rs.2500
  • Save: Rs.14000
  • Other: Rs.2000
  • Luxury: € 280

6: Write down your expenses. Following a fixed budget is essential for anyone who wants to save money. However, if you do not make a note of your expenses, achieving your goals can be very difficult. By dividing and recording your expenses by the group, you can quickly identify any issues and adjust them accordingly to meet your budget. Recording expenses involve a lot of details. While each controls its main spending, such as housing or loan payments, the intensity with which smaller expenses are controlled varies greatly with the seriousness of each financial situation.

  • It can be helpful to always have a small notebook on hand. Get used to recording all expenses and clearing the receipts (especially for larger purchases). If you can, transfer the records to a larger booklet or spreadsheet so that you can keep track of long-term records as well.
  • Nowadays, there are many helpful apps that you can download to your phone and help record expenses (some of them are free).
  • If you have serious issues with spending, do not be afraid to pick up every single receipt. At the end of the month, you can sum them up by groups. Sometimes you are shocked at how much money you spend on things that are absolutely unnecessary.

7: Start saving as soon as possible. Money deposited into a savings account every month usually incurs interest at fixed rates. The longer your money is in such a savings account, the more interest is added up. Therefore, it is advisable to start saving as soon as possible. Even if you only save a small amount each month when you’re twenty years old, do it. Small amounts that linger in attractive savings accounts for a very long time can ultimately gain many times their value.

  • Let’s assume that in your first important paid job when you were twenty, you saved $ 10,000 and put that money into a savings account with 4% annual interest. After five years you will earn € 2,166.53. If you had saved the same amount a year earlier, at the same time you would have earned about € 500 more without spending more effort. A small but not uninteresting bonus.

8: Consider creating a pension plan. If you are young, energetic and healthy, the pension may seem so far away that it does not seem necessary to think about it. But when you are older and the energy is less, you will not think about anything else. Unless you happen to be one of the lucky ones to make a great legacy, you should start thinking about retirement once you start your first serious job. The earlier the better. As mentioned above, even though everyone has their own situation, it is advisable to try to have around 60-85% of the annual income per year that you are retired in order to maintain your usual standard of living.

  • If you have not already done so, talk to your employer about retirement plans. Some pension plans allow you to pay a certain amount of salary per month into a special savings account. That makes saving easy. In many cases, such pension plans are tax-advantaged and pay fewer taxes than their salary. In addition, there are employers who will increase the sum of the pension plan and thus help you to save more.
  • Maximum amounts are agreed annually, which are taken into account in pension plans for tax benefits.

9: Be careful of stock market transactions. If you’ve been saving responsibly and putting aside a little money, investing in stocks can be a lucrative (but risky) way to raise that money. However, before investing in stocks, you should be aware that any money invested may eventually be lost, especially if you are not very sure what you are doing. Do not use this form to save in the long term. Instead, use the stock market as a chance, with money, that you are ready to lose, to take deliberate risks. In general, most people do not necessarily have to speculate on the stock market in order to prepare responsibly for their retirement years.

10: Do not lose heart. If you have problems saving money, it’s easy to lose your nerve. Your situation may look hopeless – it may seem impossible to save the money you need to achieve your goals. But no matter how small you start, it is always possible to start saving money. The sooner you start, the sooner you can be on the path to financial security.

  • If you lose your courage because of your financial situation, consider using a financial advisory service. These agencies, which often provide services for free or for a small fee, will help you start saving and achieve your financial goals.

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