Financial experts generally recommend that you should save at least 20% of your monthly income in order to secure your financial future.
So, if your post-tax monthly income from all sources is $15,000, your goal should be set aside $3,000 from it towards savings and investments.
Here are five proven ways to achieve this savings goal on a consistent basis.
Track your expenses
When you are aiming for a good monthly saving from your income, you should begin with keeping a track of your recurring monthly expenses.
The best way to keep track is to record all big and small expenditures using an expense tracker app, an online spreadsheet, or simply pen and paper.
A careful record of monthly expenses will arm you with useful data to identify which potential expenses may be lowered or eliminated to increase your savings.
It will also give you a reality check to control your expenses.
Include 20% saving in your budget
When you have a clear goal to save 20% from your monthly income, you will have an absolute figure of the amount you need to set aside each month.
Prepare a monthly budget, and include this savings component on the expenses side.
This will give you well-defined targets for how much money you are left with for monthly expenses after accounting for 20% savings.
If the goal of 20% saving looks impossible to meet in your budget, start with 10% or 15% savings. As your income grows over time, do not increase your expenses until you are able to save 20% each month.
Identify ways to increase savings
To begin with, look at the non-essential items in your expense records, such as fine dining, pricey entertainment, fancy clothes, and luxury travel.
These are easy areas where you can cut back your expenses.
Then consider recurring expenses, such as the cell phone, broadband plan, car insurance, and so on. Look at the possibility of trimming down these fixed expenses.
Find affordable substitutes, such as cooking special meals at home instead of eating outside, attending community events in place of expensive entertainment, use public transport instead of private cabs, and choose low cost travel and holiday destinations rather than spending on luxury travel.
Prioritize major expenses
Apart from the recurring monthly expenses, the money you spend on large expenditure items, such as home renovation, buying furniture, appliances and electronic gadgets, replacing your car, and paying for your child’s college education will seriously impact your ability to save.
Carefully prioritize your short-term and long-term major expenses, and see where you can make compromises and mitigate your cash outflows.
If you are a high spender by habit and end up spending excessively on clothes, household items, cell phones, car accessories, or things you don’t need, you can try to automate your savings.
Having money taken out of your paycheck automatically by your bank or employer enables you to save 20% of your monthly income while forcing you to tailor your expenses to your needs.
Keep a close watch on your savings
Constant vigilance is necessary to ensure that you remain on course to save 20% month after month for years to come.
Periodically review and adjust your household budget according to your changing needs and expenses, and check the progress you are making in terms of your income and savings.
When you can keep a close watch, you can do timely course corrections if there are deviations happening from your goal of 20% monthly savings.
Stemming from this, as you watch your savings accelerate due to the benefits of compounding, it will inspire you set higher goals for your financial future.