Saving Extra Money
Easiest Ways to Save Unexpected Money
Saving extra money is one of the easiest, yet often overlooked, ways to build financial freedom. Understanding the importance of saving money gives us the needed motivation and discipline to save.
“I am going to get a bonus of $500 on Friday. What should I spend it on?”
I often see this type of question posted in online, personal financial forums. The amounts and reasons for receiving the money vary each time, but the same basic question appears again and again.
It amazes me, first of all, that a person would ask that on a question and answer forum about personal finances. It seems more appropriate for a shopping forum.
Even more baffling to me are the variety of answers coming from people who monitor these forums and have an interest in helping others with financial issues. Depending on the dollar amount, the recommendations are usually variations on the same theme. They all encourage spending with suggestions like, “buy some new clothes”, “get the latest video game”, or “go on a trip.”
Then, I chime in like a wet blanket suggesting that the new-found money be used for paying off debt or saving for future goals. However, saving extra money does not usually prove to be a very popular suggestion.
The Case for Saving Extra Money
When faced with the choice of spending or saving money, most of us would choose spending, because it is easier and seems more fun. However, saving money is a practice that will benefit you not just once, but over and over again. Saving money should be an essential component of any financial freedom plan.
The savings interest calculator illustrates the power of combining savings with compound interest. You can use it to see the effect of one-time savings or of regular savings over a period of time. For instance, if you save $100 a month for ten years at a 5 percent interest rate, you will accumulate almost $15,600!
Finding Extra Money
For many people, the best ways to save money are by reducing ongoing expenses and hunting for bargains on purchases. Yet, some people forget that they can also save by stashing away income from events that are infrequent, irregular, or unexpected such as these:
- gifts of money
- bonuses from your job
- tax refunds or rebates
- income from one-time jobs or gigs
- pocket change
These all present great opportunities to add to your savings, since your normal living expenses should be covered by your regular income. If that isn’t the case, you may want to consider adopting a more frugal lifestyle.
Put It Aside
After you identify extra money to be saved, you need to segregate it in some way so that it doesn’t slip through your fingers. This can be accomplished by immediately depositing the money into a savings account. This provides a good psychological barrier to keep your savings separate from money that can be used for spending.
Sometimes it is not practical to deposit the money into a savings account. Another good option for keeping the savings separate is to segregate as part of your budgeting plan. An envelope budget system works well for this purpose.
Taking the envelope budget one step further, you could use money management software such as YNAB.
This will allow you to easily set your savings aside immediately.
Saving extra money is an easy thing to do. It is also a smart way to move closer to a life of financial freedom.
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