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When it comes to managing money, we have to focus on savings. We all know it’s the basic thing to attain any financial goal, but we rarely take action.
We may become enthusiastic one day and plan to save a certain amount every month. We might make a financial resolution too. But, honestly speaking, most of us can’t keep the promise we make to ourselves.
So, where are we lacking? Financial psychology. Lots of factors come into play; our financial beliefs, financial literacy, emotional awareness, etc. shape our financial health.
Let’s discuss how to use financial psychology to crush our savings goals and improve our financial health.
Don’t Wait for Tomorrow – Start Today
Most of us suffer from this psychology “We will do it tomorrow”. But, tomorrow never comes. Therefore, select an auspicious (if that motivates you) date to get started.
Select the time of the day when you stay most focused. Some people are more productive and remain attentive during the morning and some others during the evening. Let me share a secret with you – I try to do the most difficult jobs late at night after completing daily chores. But, don’t think I do it often because it’s not good for my health.
Another thing, set the date and time after consulting your partner. Both of you sit down calmly and discuss your savings goals together. Doing so, both of you can motivate each other when one goes off the track a bit.
Plan a budget – Make it your best friend
If I ask you, do you need a budget? You may answer, why do I need one if I manage my expenses quite nicely. Now, tell me, are you happy with the amount you’re able to save every month? Or, if you have to shell out for an emergency car repair, will you be able to manage your other expenses with ease? If you’ve answered ‘no’, you need to plan a budget.
If you’re trying to plan a budget for the first time, keep it simple but realistic. At first, set aside 20% which you will save. With 50% of your monthly income, plan your expenses like paying utility bills, grocery shopping, along with meeting other necessities. Keep 30% for your variable expenses that include satisfying your wants, too.
Now, try to save from this remaining 30% to improve your financial health. Tell yourself that you’ll be able to lead a better lifestyle if you can save this amount.
Set your savings goals – Set a time too
We have discussed planning a simple budget; now, set your goals, specifically savings goals, and then you may need to modify your budget accordingly.
To use your financial psychology to crush your savings goals, you’ll have to visualize your goals.
Let us discuss this in detail.
First of all, select the goals that you’re really passionate about. Ask yourself, can you sacrifice some of your wants happily to attain your goal?
For example, does a picture of your dream home excite you? If so, select it as a dream. Write another one, like a dream vacation. Add all the goals that you want to achieve that really excite you.
Now, close your eyes and visualize your dreams. Feel the excitement of staying in a beautiful home with your near and dear ones. Also, dream of standing in front of the Sydney Opera House, Australia, your dream vacation.
Then, stick a picture of your dream home and vacation in your refrigerator so that you can view it every day. It will give you the psychological boost and motivate you to attain your goals.
But, one thing is remaining! Set a time when you want to achieve your dreams. Otherwise, how will you plan to achieve your goals?
Therefore, in this case, your goal can be to buy your dream home in 2025 and go on an Australia vacation in December 2021.
Likewise, talk to your partner and decide what you want to achieve within 10 years from now.
Automate your Savings – Reduce your Stress
One of the best ways to automate your savings is to start two savings accounts with names ‘Dream House’ and ‘Australia Vacation’. Automate a certain amount of your paycheck directly to this account every month. Doing so, you won’t have to worry about saving for these goals.
However, from time to time, check the amount you’ve saved to motivate yourself to carry on with your savings strategy until you reach your goal.
Whenever you get a bonus, you can add the amount to these funds. It will help your fund grow fast. And, you might be able to attain your goal within your set time.
Emergency fund – Feel its power
While saving towards attaining your financial goals, do not neglect your emergency fund.
If you have a solid emergency fund, you can pursue your financial goals without worrying about your rainy days.
Do you know how much you need to have in your emergency savings fund? Well, it varies from one person to another based on your lifestyle. The ground rule is to have an amount with which you can sustain for about 6 months without a paycheck and without liquidating your investments.
So, assess your expenses and save that amount in your fund.
Increase your income – Give your savings a boost
Are you surprised why I am not saying to reduce your expenses? Well, unquestionably that is needed. But, increasing your income can help you save your target amount every month with ease.
You can use your leisure time to do what you want and earn a few dollars. You can give online tuition, take a survey of a product you like, and so on.
You can earn extra even without stepping out.
Retirement fund – To take care of your golden days
The discussion remains incomplete if we don’t stress on depositing in your retirement fund.
If your employer offers a 401(k) retirement plan, try to contribute an amount to get the highest match from your employer.
Doing so, you can pursue your other goals without having to worry much about your golden days.
If required, talk to a financial adviser about how much you need and how to plan for your retirement. Well, that’s a financial goal too.
Tackle Debt – Your Powerful Enemy
How will you crush your savings goals if you’re burdened with debt? Well, some debts can help you but you need to manage them too. A home loan helps you to build your net worth but, you need to make regular payments to repay the loan on time and to avoid foreclosure on your home.
And, if you have credit card debt, a major portion of your income will go to pay the interest on the outstanding balance. Therefore, look for suitable ways to eliminate your debt and pay it off as soon as possible. Then only, you’ll be able to save the amount that otherwise, you’ll have to pay to satisfy your debt payments.
If required, take professional help if you can’t reduce your debt burden on your own.
Do not be stressed to repay your debts. Plan a suitable strategy and you’ll be able to get rid of annoying debts within a definite time. Just pursue your savings goals along with paying back debts. Doing so, you can repay debt and save for your goals together.
Following the above-discussed strategies can help you improve your savings percentage quite a bit. As a result, you’ll be able to attain your financial goals within time.
While reading this, have you come up with any other idea of getting that psychological boost to save? You can share it if it can help you attain your financial goals and improve your financial future.
Author’s Bio: Good Nelly loves to analyze the day-to-day financial happenings along with critically analyzing the changing rules of credit, debt, insurance, mortgage, etc. related matters. She loves to share her analysis with others thus helping people to understand the exact scenario. She also maintains a blog My Way Of Viewing where she writes about her experiences.
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