Why These Simple Tips Lead to Saving Money

How each person manages their money is not created equal.

In fact, the spectrum is vast on saving money, from those who have a hard time doing it and can’t seem to take control of their finances to individuals, families and couples alike who have it almost as routine to have money saved from one week to the next.

Where you fall on that chart often determines not only how much money you have saved, your financial outlook and long-term growth, money-wise, but also how you view money as a whole, whether it’s a source of contention for you or you’ve managed to simplify how you view money in totality.

To be part of that former group, the ones who have no qualms about money, what to do with it and how to save, is what most strive to have happen when it comes to financial flexibility and a lack of worries from one day to the next.

The reality is most aren’t part of that group, with exclusivity in terms of overall population being well below 50 percent. In fact, 65 percent of Americans worry about money.^[1]

That’s quite a figure to digest, which clearly suggests that more than half of the population doesn’t do a very good job managing their finances.

Even more telling is another statistic that, while looks small in nature, tells a greater story to the money woes the average person has. Approximately 30 percent of that same American population worries about money all the time, calling out and using the word “constant” to describe how they feel.^[2]

If you really stop, pump the proverbial breaks and take a long, logically look at finances and managing money, you’d see that this isn’t “rocket science” a favorite phrase used to describe something that is truly simple in nature.

Your income is a certain figure and your expenses should be less than that.

When you think about and preface money in that way, almost an elementary explanation, you have to wonder why so many people are worried about their financial situation.

Perhaps it is living beyond your means, spending too much on items you don’t need, lacking a budget or just not really doing a good job of differentiation between wants and needs.

The fact is the financial issues that plague the masses goes beyond just saving money but also rests on the amount of debt a person carries, in addition to subpar retirement account balances, on average, from one person to the next.

And this isn’t an age specific issues, either.

The average 18 to 25 year old spends more than they make on a consistent basis, with the average being 50 percent for the entire United States population.^[3]

That means you’re spending more than you make, and thus fall into the paycheck to paycheck category.

Retirement also is a chief concern for all ages, but mostly those above the age of 40, perhaps putting saving money and their “golden years” on the back burner.

Only 51 percent of the population who isn’t retired have a sense of comfort that they’ll be able to retire without worry.^[4]

Not exactly a ringing endorsement financially across the entire board.

For those who believe that the key to saving money is making more money might be on the right track but that’s not a proven hypothesis all the time, either.

Having a part-time job that generates more income (more on that later) is good to supplement your savings but not a full-blown reason to spend more.

How do you simplify money, a subject that is widely considered stressful and difficult? Here’s how:

Volatility Income and Spending: Consistency is key to save

If you haven’t heard the phrase “volatile income,” chances are one of two scenarios exist.

You don’t have one or you actually do, but don’t really consider it a problem.

The definition of volatile income really is an income that changes so frequently, week to week a minimum, that you really can’t plan, spend or save accordingly.

This isn’t just about spending wildly but also income that changes for a variety of reasons, such as being self-employed or working when hours are available, for instance.

Only 47 percent of U.S. household have income you’d define as predictable, with 25 percent changing from one year to the next with a potential swing of nearly $5,000 from one year to the next.^[5]

What makes this even scarier from a financial perspective is that these are the same households who admittedly say they couldn’t come up with $2,000 in a pinch.

Volatility in income also can be attributed to spending woes and not really paying attention to how you spend.

That spending could stem from a sense of comfortably too, with a job market that is performing well, with a 45-year low on job-less claims, along with spending being up.^[6]

Having an economy that gives the consumer a reason to relax doesn’t necessarily mean spending should fall by the way side.

If spending is inconsistent, much like your income would be, you might want to consider being a little more budget conscious. If your income changes, take the median low of what your income is over the course of a 12-month period, then budget according to that figure.

Using the low end as a barometer for spending means that, for example, if you’re earning $2,000 on an “off” month that anything over and above that should find it’s way into your savings account or to pay off debt that exists.

The problem with taking the 12-month average on the high side is that the valleys you experience in your earnings are going to cause a deficit that can’t be overlooked and needs to be accounted for in the month it occurs.

Budgeting equals Savings: Emergency funds can’t take a back seat

When talk centers on emergency funds, you have to first understand what they mean, and why they’re important.

An emergency fund means that if you were to lose your job and need to fall back on money saved, you should have a certain amount of money in mind, based on your current salary.

You should have between three and nine months of salary saved as your emergency fund.^[7]

That fund, for someone who makes $5,000 per month, means that at minimum they should have $15,000 but closer to $30,000 with the max being $45,000.

Creating an emergency fund plays into the first item, learning to control income and budgeting accordingly.

Not having a budget most likely will lead to not being able to save; they’re mutually exclusive to one another as far as your financial planning goes.

As much as you say you have a budget, what most people trot out from that perspective is a general idea of what they’re spending, without much in the way of a checks and balances situation occurring, mostly devoid of detail.

Typically about 33 percent, or one in three households, use a budget.^[8]

Hardly a ringing endorsement financially.

Budgeting has its ups and downs for most as the majority of people see it more about depravation than salvation as far as saving goes.

Not being able to tell the difference between a want and a need plays a role in this process, too, with some suggesting that a vacation, for instance, is a need because well, they need time off from work, the hustle and bustle of life. While that point is valid, you can’t afford to spend $2,000 on a trip if your emergency fund is zero.

In addition, one of the reasons budgets don't work, which some suggest is why budgeting is “overrated,” centers not so much on the principles at play but instead the type of budget you have. If you’re just listing expenses, the ones you know and write checks for or pay the bill online, that’s fine, but you’re probably overlooking day to day expenses or other things such as renovations to the home, car repairs and other items that aren’t accounted for on a traditional budget.

Part-time work equals full-time savings: Earn more, save more, simple

While it’s easy to throw out the rhetoric that if you earn more, you’ll save more, that tale is cautionary at best.

The problem with someone gaining a part-time job or adding additional income is that it often leads to spending more, too.

The thought behind part-time work is to take that as “found” money and not dispose of it quickly and without regard to your financial outlook but instead as a means to build a foundation to a savings account or emergency fund.

Granted, part-time work doesn’t always fit into a busy schedule, and working a second job isn’t ideal, but that’s why you need to look for me flexible positions or something that can generate income that isn’t a work all day, come home and then go back out and work more (although that sometimes is the only recourse).

One misnomer about money, too, is that those who have it don’t worry about it, but that isn’t true. It’s more of a different perspective attached to the concern.

A recent survey of investors who have a net worth of one million dollars (or more) say they still worry about money, in more of a losing it all in one fell swoop type feel to it; 63 percent believe one bad financial decision means jeopardizing their income and wealth.^[9]

While that’s not a call to action to feel bad for those who have that sort of worth, you also can’t assume that more money means you aren’t going to still need to be smart about how you save and spend (or invest).

Adding income has to mean that you fall into the category of taking the 20 percent you should be saving from your monthly income and putting it toward saving. That percentage is right where you should be, so if adding a job takes your monthly income from $2,000 to $3,000, for example, than the 20 percent you should be saving is $600 per month, so you’re earning $1,000 more so most of your part-time income has accomplished that goal.

Taking that additional thousand dollars and buying more clothes or vacationing defeats the entire point.

Truthfully, no one intends on being poor with money or wants to be labeled as someone who can’t budget, save and is lazy when it comes to how they spend.

Given that 35 percent of the population isn’t worried about money suggests that this isn’t a 90 to 10 percent type problem but instead has some sliver of hope that money can be managed better.

Another positive that wasn’t touched on was the unemployment rate being better than it’s been in years, with the rate at 3.9 percent through July 2018, with more than 157,000 jobs created with employment up in professional and business forums, health care and social assistance work.^[10]

The reason the job outlook is worth noting in this case is because most equate a lack of income to the reason they can’t afford to pay bills and the fact that cost of living is on the rise.

One point is the cost of housing taking up as much as 37 percent of the total budget in one given household, a figure that is above the suggested 30 percent at most and leads you to believe that affordable housing is a myth.^[11]

Even given that information, you still can’t look past the fundamentals of finance, and that includes living within your means.

You have to budget, as suggested, learn to save and shop smarter and be advised that a second job should be convenient and, if necessary, supplement income that isn’t there.

The real goal behind saving money isn’t about stressing but succeeding in a way that puts your financial situation in perspective: always wanting to improve it but understanding limitations that exist.

Those who make six figures or more still struggle too, so income isn’t always associated with being good with money but rather avoiding what you don’t need, managing what you have and working within boundaries that are non-negotiable.

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