Americans ranked 14th in the world in financial literacy. They don’t know the foundations of personal finance, and it shows in their bank accounts.
About a quarter of Americans don’t have $400 available to cover an emergency. The median retirement savings is enough to give retirees about $600 a month to live.
It’s getting more difficult to save money thanks to increasing costs and steady earnings. More money has to go to basic expenses, which means you have less disposable income to play with.
It doesn’t mean that you should despair and feel hopeless about building adequate savings. You simply can’t give up because it seems too hard.
It’s actually not as hard as you think once you build some basic money management skills. Do you want to find a new way to relate to and manage money?
Read this guide to learn personal finance tips to save money.
Look at Current Income and Expenses
This isn’t the time to bury your head in the sand. It’s time to take control of your personal finances. This step is relatively simple.
You’re taking a snapshot of your financial situation. Look at your income and expenses over the last several months.
See how much you’re earning after taxes and how much you spend. Do you barely break even each month? Check your expenses and look for opportunities to cut back and save money.
Should You Save or Invest?
There’s always a question as to whether you should save or invest money. Both investments and savings are foundations of personal finance.
Financial gurus say that you should invest because the money will grow faster over time.
That’s true, but you also need to have cash on hand for emergencies. If you lose your job or have a medical emergency, it’s harder to get cash out of investments.
Let’s say you have your money tied up in a real estate investment. How long would it take to sell the investment and handle the emergency?
Ideally, you want to have both. It’s best to start with cash savings and then put funds towards investments.
Set Small Goals for a Firm Foundation
Common financial advice says that you should have between six to 12 months of savings set aside for emergencies.
If you’re starting from zero, that seems like an impossible thing to do. It would take years to build up so you don’t bother.
That’s why it’s important to set small, attainable goals. This builds your confidence and small goals aren’t as overwhelming.
Start with a $500 savings goal, then $1,000, then a month of expenses. You can keep growing your goals and get better at savings.
Adjust Your Money Mindset
What’s your mindset around money? You probably have beliefs about money that cause negative reactions to it.
Money is just a tool. We place a ton of value and attachments to it. Money just exists.
If you think that money is evil or having money makes you selfish, then you could be causing a lot of financial trouble.
You could use help from a financial therapist or financial coach to help you identify those negative beliefs and transform them into something positive.
Pay Yourself First
Paying yourself first is one of the key foundations of personal finance. Most people get money and they pay the bills that are due right away.
The problem with that is they don’t leave enough money for themselves to save. That’s why you need to pay yourself first.
You might think you can’t do that.
Well, you pay the government first before you see a dime. Taxes get withheld from every paycheck.
Set aside a small percentage of your income and put it into a savings account. You can do this automatically or use an app.
In the book Profit First by Mike Michalowicz, he talks about Parkinson’s Law. This is the law that says if you give yourself a certain amount of time to complete something, it will take that amount of time.
He applies the same law to money. If your income goes up, your expenses rise to meet your income. The opposite is true as well.
If you set aside funds, you might miss it for a month or two. Your income will somehow rise to meet your expenses.
Find Opportunities Everywhere
You’re probably wondering how your income will rise to meet your expenses when you put money aside. There are opportunities everywhere to make more money.
Ask your boss for a raise. Change jobs or go for a promotion in your company.
You can make money while having fun with online games from Inspired Gaming. There are so many small business ideas that don’t require thousands to start.
You can start a blog around a passion and monetize it. You can make money from YouTube and other social media channels.
Pay Cash for Everything
Paying cash for everything is a smart decision. It prevents you from overspending and you don’t go into debt.
Paying with cash forces you to spend what you have available.
It makes you aware of how you spend your money and you can save it. It becomes easier to manage because you physically handle money, rather than swipe a plastic card.
Build Solid Foundations of Personal Finance
Are you ready to take control of your personal finances? This guide showed you how to build good foundations of personal finance so you can save money.
You’ll be able to handle emergency situations without going deep into debt. That alone is enough to relieve stress and anxiety. You’ll be able to sleep better knowing you can manage money successfully.
Be sure to check out the blog for more financial tips today!
