Close your eyes for a moment and imagine you could travel more, buy a new house or a great car. Imagine you could fulfill every wish.
But be careful, the reality is catching up with you right now. Your rent is rising steadily, expenses of living are on the rise, and your employer probably has not given you a decent pay raise for years.
How can you get the best out of your money despite this uncomfortable starting position? Are you ready to save money effectively?
My name is Alexander. Since 2016 I write mainly about investing on my blog. Today I will show you in 4 simple steps how you can save money and fulfill your wishes.
Step 1: Define Your Goals
Without precisely defined goals it will be difficult to get anywhere. Visualize your goals and specify for yourself what is important to you.
What is it that you really want? Which dream have you always wanted to realize?
Write down what comes to mind. The more specific your goals are, the easier it will be later on evaluating how to achieve them. A positive moment of success will give you an extra drive for the next goals.
For example: The clearer you are about your goals, the more specifically you think about them. The more aware you become about what matters to you, the easier it will be for you to resist temptations and get what you want.
Distinguish between short-term and long-term goals. Short term goals motivate you to stick to the big plan. Gain these positive experiences by sticking to small goals you can reach faster.
Step 2: Analyze Your Income and Expenses
Now that you have decided to work towards the fulfillment of your dreams actively, you should first of all work out exactly how much you can realistically save and how much time the saving phase will take.
Note your income and expenses, really all of them. If you have multiple accounts, then you must compile all positions of all accounts.
Thanks to online banking, this should be pretty easy with every bank like Bank of America. Categorize as neatly as possible, but do not exaggerate with the details.
It‘s enough to have one category for groceries – listing apple varieties is too much. The higher the expenses, the more detailed should the categorization be. Effort and benefits should be in proportion.
Pay particular attention to distinguishing between necessities such as groceries and nice options like weekly dinner in your favorite restaurant.
Several current account providers allow you to categorize your income and expenses. That makes it easier for you in the future.
And there is, of course, the old-fashioned way using Excel for transferring individual positions of your bank statement.
In the end, it’s probably best to either use the individual online accounts or use a tool that you can connect to your accounts via an interface (API).
This is especially helpful if you have more than one account, or if you want to include for example credit card statements and online broker commissions within the account.
Give your credit card bill special attention
It is easy to pay with a credit card, all the more so if the sums spent are debited from your checking account only 30 or 60 days after purchase with Mastercard or VISA credit card.
And here the dangers lurk. Very quickly and without realizing it you‘ll have acquired a Nintendo Switch for your kids or maybe a fancy outfit of the favorite fashion label for your wife.
You have to get that under control and try not to live above your means.
Spending money that you do not have is not the best of ideas.
Either use your debit card or pay in cash. Of course, prepaid credit cards serve a similarly good purpose of immediate assignability of expenses.
Step 3: Choose Accounts and Financial Institutions That Fit Your Needs
Of course, you already have a bank account and potentially a brokerage account, maybe even two or more. But have you taken the time to figure out what these accounts actually cost you?
Do you have to pay regular account maintenance fees, or are you charged a fee for withdrawing money? What about overdraft interest?
Changing your electricity provider might be annoying as it costs 15 minutes of your time. Changing a bank account require a lot more time.
Why all the hullaballoo? You can save money doing this. Also, also smaller amounts monthly sum up to sizable sums in the long run.
What should you look for when choosing your bank?
Avoiding fixed costs is essential. If you pay $10 per month for your current account, these will sum up to $1,200 unnecessarily spent over the time of ten years.
If you pay $20 a month for overdraft interest, although you could get away with half as much, this too will be an unnecessarily amount of money wasted over time.
Do you pay for withdrawing money? Maybe you even have to pay fees for cash deposits? Well, that certainly can be avoided.
When it comes to cost-effective current accounts, you‘ll sooner or later come across the accounts offered by Alliant Credit Union, Ally Bank (online only) and Charles Schwab Bank, no matter what other banks you use. With these three providers, you can save you a lot of money.
Automatize your finances
An online account has many benefits, among them cool functionalities that just don‘t exist at the bank counter. Manage to automatically classify receipts, save remittance documents as templates and create monthly reports.
This saves time and offers much more transparency than any fancy paper account statement.
Also, if the time consuming trading of individual stocks gets on your nerves and you are perfectly happy with an average expected performance of 6-8% p.a. then there is a solution.
You‘ll notice that ETF savings plans, or even a Robo-Advisor, are a great addition to automating your finances in the long run.
Step 4: Align Your Life With Your Goals
The bitter truth is that in order to have more money in future, you must first spend less, or earn more.
The budgeting methods described above will help you to set the right course right from the start.
Think of your plan and stick to it. You do not have to do without the quality of life, but you should do things differently than before.
Final Thoughts
The important thing is that you start now to control your finances and to actively save month each month. Make sure to use one of the best investment apps. Most of them are for free and they will make it easier for you, to stick to the 4-step plan mentioned above.
I hope that with this post I could show you some useful methods that will help you to make the most of your money and realize your dreams.
The above guest post was written by Alexander of