The Empowered Mindset: How to Save and Grow Your Money
The Empowered Mindset is a series that dives deep into some of life’s most pressing financial topics. The goal? To help you develop a framework for making money decisions that work for you. This series is dedicated to getting you into the driver’s seat of your financial future.
When you look at your paycheck and bills, do you feel as if you’re in control? Or do you feel like your finances just happen to you and all you can do is hope to come out positive at the end of the month?
It can be really difficult to empower ourselves in regards to how we spend, save, and grow our money. Between rent, student loans, cell phones, and an attempt to have a social life, even a paycheck that seems like a lot can feel like nowhere near enough by month’s end. But with a little strategy, your money might go a longer way than you thought possible.
Let’s dig into how this can work for you.
How You Spend = What You Value
The first thing you should think about when strategizing your finances is how you’re already spending. The things we swipe our credit cards on every day tell us a lot about what we value — and you might find that you’re spending on things that don’t actually mean that much to you.
When it comes to planning your spending, remember that it is possible to get what you want, just not everything you want. And taking a microscope to your spending could illuminate opportunities to get closer to what you value.
So, go ahead and take some time to review your credit card statements from the past few months. Are there items on there that didn’t add much to your life? Stop spending on them moving forward. Do you see spending patterns that align more with what your friends value rather than what you do? Consider other ways to hang out with them that don’t cost you money on what you don’t enjoy.
For example, you might find charges for expensive dinners or bottle service that you could really live without. One way to cut down on that would be to suggest eating at more affordable restaurants, or even having dinner parties if that’s more your speed.
Or let’s say you noticed that there was more money spent on clothing than you expected — and that it happened because you were shopping with friends for fun, which can make it harder to say no to items you might have more easily ignored if you were alone. Whatever the case, what you’re looking for is charges that you in some small way regret, or would have done differently if you could do it again.
In other words, reviewing your spending can help you, (a.) find patterns that don’t align with your values and, (b.) break free of them. And then, when you think about what it is that you do value, you can find ways to spend on that guilt-free. After all, the money you’ll save on all the other things will give you the wiggle room to do it.
That’s what spending within your means is all about. Choosing what you value, suspending money spent on all the rest, and using the leftover cash for the goals and things that actually mean something to you.
How to Save Towards Your Ultimate Goals
Of course, saving money isn’t always that simple. Cutting a few items from your budget isn’t always enough, or maybe you find that you don’t know where to start in creating a spending plan in the first place.
If that’s the case, here’s how you can reverse engineer a budget based on your financial goals:
Decide on your goals and a timeline.
First of all, think about the goals you want to reach in the next six months, one year, five years, and so on. Make a list and order it by importance.
Then create two timelines. The first timeline is purely hypothetical and should be based on when you’d like to achieve each goal. The second timeline should be more conservative and based on what you feel is realistic based on your income and cost of living.
As you go through the following steps, use both timelines and see which one will work, or adjust the timeline to something in the middle.
Calculate how much you’ll need to save each month.
Taking your two timelines, divide the total amount of money you’ll need to save for the goals by the number of months you’re giving yourself to achieve them. That number will be the amount you’ll need to save each month in order to achieve your goals on time.
Keep using your ideal timeline and your more conservative one in this step, and then the next step will help you see what’s realistic.
Add up all your fixed costs and see what’s left.
Now add up your fixed monthly costs. This includes things like rent, student loan bills, a car loan, your base cost of food, and so on. This does not include things like shopping or entertainment, which can always be adjusted if necessary.
What do you have left? Does the amount come close to either of the monthly calculations you came up with in step two? Or are you way below?
This is when you’ll see which timeline, if any, is realistic. Now you have a choice: You can either pick one of the timelines from above, make a new one that meets in the middle of the two, or adjust your expenses if you’re not able to even meet your conservative timeline.
Since these expenses focus on your fixed costs, it might not seem as if any adjustment is possible. Challenge yourself to see if there’s more wiggle room than you thought.
For example, maybe you can change mobile providers to decrease your cell phone bill. Or you can get a roommate or move to a cheaper apartment so you can pay less rent. Examine all your options before you decide that your fixed expenses are as reasonable as they can get.
Automate your savings.
Finally, once you’ve chosen a timeline, automate that monthly amount you need to save in order to reach it. Don’t leave this step to chance — saving money can be a lot easier said than done. But if you automate it, the money will be out of sight out of mind before you have a chance to do anything else with it.
It’s easy to automate savings these days. You can ask your human resources department to split your direct deposit between your checking and savings, you can set up an automatic monthly transfer with your bank, or you can use apps like Empower to do this for you. Once you set it, you can forget it — and then watch that savings grow.
Don’t Forget to Grow That Savings
Here’s something people don’t talk about much: You can grow your savings even as it sits in your bank account.
How? One option is to deposit your savings each month into a high-yield savings account, which is a savings account that will pay you more than the meager 0.01% you might see on an average savings account. Another is to invest your savings with tools such as ETFs (exchange-traded funds). These are diversified investment funds that can sometimes be less risky than individual stocks, and they can help your savings beat inflation. What’s more, you can use robo advisors like Acorns, Betterment, or Wealthfront to get set up.
Scared to invest? Consider this. Over time, inflation will make money sitting in a savings account worth less than it’s worth today. That’s because the average interest rate on a savings account is less than one percent, while the rate of inflation is more than two percent.
In other words, if you’re not investing your savings, you’ll lose the value of that money over time. But if you invest your savings in a fund with a risk-level you feel comfortable with, you can grow your money beyond inflation and increase the value of the money you’re putting away each month.
But be sure to store an emergency fund in your savings account before you start investing. After all, you’ll want to you have some money that can be accessed quickly just in case.
A Little Strategy Can Go a Long Way
There’s no getting around it: Saving money is hard work. And, in a world where the cost of living seems to outpace what we can earn, savings can sometimes even feel impossible.
(Not to mention the fact that holding yourself back from a little fun spending, especially when you’re already living on a tight budget, can be downright frustrating at times.)
That’s why it’s so important to keep your goals at the forefront of your mind. When you remember that you’re following a spending plan so you can get the life you value the most, then it’s easier to remember that you’re doing this for yourself and not against yourself.