Key Takeaways
  • To become financially stable, you must make smart decisions consistently and intentionally. 
  • However, when you do not have an effective financial method, making intelligent decisions can become challenging. 
  • So, below is a list of techniques that could help you create a plan to save more money and become financially independent in the future.
Are you ready to make some real money moves?

To become financially successful in the long run, one must make a series of smart decisions. Unfortunately, one of the main issues some people struggle with is spending money excessively, which can hurt their net worth. As a person’s main goal should be to try and achieve financial independence, below are some tips that could help you expedite your financial success. 

 

Create a Realistic Savings Plan

 

One reason why some people struggle with saving money is that they try to do so in an aggressive manner. The important thing to remember is that you will make money for most of your life. So, it is better to create a saving plan that will allow you to save your money each month without feeling too restricted. This will allow you not to worry and stress about money later on in life.

 

Create a Realistic Savings Plan 50-30-20 Budget Rule

Image Credit: Ariya J / Shutterstock.com

 

When you find this balance, saving money becomes easier and does not seem like a chore. Although there are many budgeting methods, one of the most common savings plans people use is the 50/30/20 rule. This budgeting rule says 50 percent of income goes towards needs, 30 percent towards wants, and the remaining 20 percent will be put into savings. 

 

Wants

 

Wants are expenses that are a luxury, meaning you can live without them. Some of the most common examples are subscriptions to streaming services such as Netflix, spending money on clothes, and dining out. However, excessive spending on wants can have long-term consequences.

 

Needs

 

On the other hand, needs are expenses that must be paid to survive. The main examples of needs are paying for transportation (car payments), housing accommodations (mortgage/rent), utilities (electricity, water), and food. As these expenses are usually non-negotiable, keeping them at a minimum can be difficult. 


Consequently, paying these types of expenses is crucial before any other major purchases are made. When a person begins prioritizing their wants over their needs, that is when financial issues begin coming up.


Buy Necessities on Sale


Many grocery stores have increased their prices due to inflation. Consequently, everyday people who are in need of food have to spend more money to buy the same goods as before. However, you are saving money by buying your desired goods on sale, which can then be used elsewhere. 

 

Buy necessities on sale

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Some companies and stores may have higher markups on their goods and services than their competitors. This is because a fraction of buyers will select their items because of their convenience. When a person does not care about the price of the goods they wish to buy, this type of ignorant attitude could have undesired negative effects. On the other hand, having the mentality of always looking for a sale will allow you to save a large sum of money over time, allowing you to reach your financial goals quicker.  

 

Keep Liabilities to a Minimum


Being smart with money helps raise the value of your assets, but another aspect that should be factored in is keeping liabilities to a minimum. Liabilities refer to money that must be paid back, such as student loans and mortgage payments. When a person has many liabilities, it can negatively impact long-term financial plans since a significant portion of your monthly income must be used to pay these expenses.

 

Unfortunately, a recent survey by Inside 1031 found that 49 percent or nearly half of Americans rely on credit cards to help them pay for everyday essentials. However, credit cards have high-interest rates, meaning once a consumer cannot pay off their monthly balance, it will lead to them having to spend a larger portion of their income to try and pay off what they owe. 

 

Therefore, when dealing with liabilities, ensure that the amount borrowed can be paid off at a reasonable pace and will not exceed your monthly income. 

 

As the savings tips mentioned above will help your financial situation in the short term, below are some different routes to help accumulate and grow wealth over time with the money saved. 

 

Create An Emergency Fund

 

The first type of financial technique that should be used is setting up an emergency fund. An emergency fund is a savings account that contains between three to six months' worth of monthly expenses. 

Create an emergency fund

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For example, if your monthly expenses amount to $500 per month, the emergency fund should contain between $1,500 and $3,000. The emergency fund's purpose is to set aside money for a rainy day. If an unexpected event occurs, the money set aside in the emergency fund will help fund these extra expenses, reducing the financial stress induced by this incident. 

 

Therefore, to prevent circumstances from setting you back financially, set up an emergency fund, so you have more money to overcome any financial obstacle.

 

Set Up Automatic Transfers

 

One of the best parts of working is seeing the paycheck enter the checking account. However, when the money is in the checking account and not allocated nearly immediately, it could lead to more money being spent than intended. When more money is spent prior to allocation, it could impact your savings goals and hinder your process of achieving your financial goals.


As a result, one plan of action that can be considered is setting up automatic transfers, which instantly move money from one account to another. 


For example, you can set up automated transfers to move the money if you are paid bi-weekly and wish to save 50% of your paycheck every payday. This transfer will allocate the money from checking into an alternative account, and the money saved can be utilized elsewhere. 

 

Recommended Read: Why People Use Automated Savings Plans


Open an Investment Account

 

After your emergency fund has been maxed out, the next plan of action should be to open an investment account. Unfortunately, having all your money in a savings account is not the best long-term idea, and here is why. On average, U.S. banks pay 0.07 percent for every dollar deposited in their savings account each year. So for every dollar invested, you will receive seven cents at the end of the year. 


As inflation is much higher than banks' interest rates, your money will be worth less over time. Historically, by investing in the stock market, there is a possibility of making a 10 percent annual return on average. As a result, when the rate of return is higher than the inflation rate, your money is worth more. And, through compounding interest, it could be worth much more with consistent deposits over time. 

 

Open a Retirement Account

 

The typical age when most people retire is 65. However, it never hurts to retire earlier. One common way people improve their future financial situation is by opening up a retirement account. 

 

Saving for retirement allows you to set money aside for when you decide to retire, which will ultimately grow over time. Below are two of the most common retirement accounts people open.

Open a retirement account

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Traditional IRA

 

A Traditional IRA (Individual Retirement Account) is the most common type of retirement account people open. This account allows account holders to contribute $6,000 annually until they reach 50. Once they reach this age, the contribution limit rises to $7,000. 

 

Also, be aware that these contribution limits typically change from time to time, so always be on the lookout to see if the limits have changed. If you go over the limits, there could be financial consequences.


The money invested in this account can be used to invest in various financial securities. Over time, hopefully, these investments grow when retirement rolls around. However, the main downside to this type of retirement account is when the money is withdrawn, it will be taxed at the regular income tax rate. 

 

Roth IRA


A Roth IRA is a type of retirement account in which the contributions are made using after-tax dollars. The main benefit of this type of retirement account is that any and all profits made using the deposited money within the account will not be taxed in the future. Therefore, if you wish to consistently contribute and invest in a retirement account without wanting to pay taxes when you wish to withdraw the money, this type of account may be suitable for you.


Recommended Read: How to Choose a Suitable IRA Account


The Money Wrap-Up

 

The tips mentioned above may not be suitable for everyone, so whether or not you follow them, remember that consistency is essential to succeeding. Regardless of how much money you make, you can improve your financial situation by keeping your expenses low and properly utilizing the majority of your income. This simple yet effective method will help you achieve your financial goals if executed correctly. 


Disclaimer: The information regarding various money utilization techniques should not be construed as expert advice. Always consult with a financial advisor before making any major financial decisions. 

 

Main Image Credit: Vitalii Vodolazskyi / Shutterstock.com

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