Saving money can be done in many different ways. You can clip coupons, search for better deals between different retailers, and simply avoid buying excessively. Your life savings should represent the money you put aside for a time when you really need it. Building this amount up over time is critical to maintaining financial security throughout your life. Unfortunately, unexpected expenses and costly emergencies can drain your life savings and even put you in debt. Here are some tips to help you build your life savings.
Please keep in mind that I’m not writing this to dispense financial investment advice, but rather to share the rules I live by, and describe a system of tips that has worked for me. You should never blindly follow any advice without doing your own research.
Keep Savings and Expendable Income Separate
Using the same account or savings pool that you use for your life savings to buy a computer or a new phone is setting yourself up for disaster. Making your long-term savings as freely as available your expendable income makes it easier to justify unnecessary expenses. In many cases, it’s better to create another savings account that only your long-term (life) savings should be in. Making a withdrawal from this account shouldn’t be possible from your primary debit card or at a point of sale with anything you carry on you daily.
Split Direct Deposits Between Accounts
Splitting a direct deposit from your employer between multiple accounts is a great way to make sure you’re making regular (and affordable) contributions to your life savings. A good rule of thumb here is to allocate a percentage rather than a set amount, allowing some flexibility in the savings amount that directly reflects how much or how little you actually make. For me, a 10% draw to a savings account that I don’t have easy access to works out very well.
Only Save What You Can Afford
If you decide to go all out and throw 40% of what you make into a savings account, you’re probably setting yourself up for failure. As soon as you run out of expendable income because you oversaved, you’ll find yourself cracking the savings account open on a regular basis. This is a bad habit you should avoid at all costs, even if it means giving up a savings goal. Never put away more than you can afford. A life savings is an investment made to yourself, and investments should never be made with income you can’t survive without.
Create Savings Goals
If you have a solid idea of how much you can save without breaking the bank, you can begin establishing solid and reachable savings goals. How much would you like to have saved by the end of the month? The year? Five years? Ten years? Retirement? Set reasonable goals and don’t get down on yourself for falling short. Setting an unreasonable goal can set you up for failure and result in a complete loss of motivation to save. Setting goals can give you something to strive for and increase the peace of mind that comes with knowing you’re in better long-term financial shape.
All work and no play makes everyone feel dull. If you dedicate every penny you have to either pay an important bill or save for your future, you’re actually more likely to tap into your life savings when you really don’t need to. Pay yourself a set amount each week, month, or quarter. This amount should be used to purchase extras that you don’t really need, but would love to have. Would you like a better gaming computer? Add another savings goal separate from your life savings, and put money into that pool. This will enable you to enjoy the extras of life without risking the most important financial safety net you have.