How to effectively save money

You can do two things with money: use it now, or use it later, which is also called saving money. Using money now is extremely easy, but saving it to use it later is difficult. We will teach you how to save money so that you can afford your future now. There are three main questions you need to ask yourself to effectively save money: 1. Goal: How much money do I need? 2. Timeline: How much time do I have to reach my goal? 3. Assets: What do I currently have?

Objective

The first question you need to ask yourself is “What am I saving for and how much does it cost?” Saving is a mindset. It’s like having the determination to go to the gym or to eat right. It requires patience, commitment and above all a goal to drive you. An example of a goal could be: – Car – House – Vacation – Food – Jewelry – A new phone or computer – An amount (I want to have 100,000 SEK in my savings account)

Timeline

The next question you need to ask yourself is “How long do I have to reach my goal?”

An example of a timeline could be: – 1 week – 7 months – 5 years

Assets

The next step is to ask yourself, “What do I currently have?” Take an inventory of the money you currently have that you can add to your goal. Examples of assets: – Savings in the bank. – Cash lying around at home

Putting it all together

You now have all three ingredients that tell you how much money you need to save to reach your goal.

For example:

– Goal: A used car that costs 100 000 SEK. – Timeline: You want it in 15 months. – Assets: You currently have 25,000 saved. Therefore, you need to save 100,000 – 25,000 = 75,000 kronor in 15 months. Or… 75 000 SEK / 15 = 5000 SEK / month

What can I afford?

Revenue

You need to figure out what your current income per month is that will be the main contributor to your savings. Examples of income: – Paychecks – Pension checks – Government checks – Interest income from fixed deposits

Expenditure

Now you have to ask yourself, “What do I have to pay for every month?”

Examples of expenses: – Rent / Mortgage payment – Electricity bill – Telephone bill – Car lease payment – Grocery bill

Affordable savings targets

You now have the information that tells you how much money you can actually afford to save to meet the savings requirements.

Example of savings targets

– Income: 25,000/month – Expenses: 22,000/month – Savings you can afford: 25,000 – 22,000 => 3,000/month to save to meet the savings requirements. We have already established that to buy a 100,000 car in 15 months with 25,000 already in savings, you would need to save 5000/month. Instead, you can only afford 3000/month. Therefore you are missing 5000 – 3000 => 2000/month There are 4 main variables that you can change to make up the shortfall between “how much you need” and “what you can afford”: – Goal – Timeline – Income – Expenses Goal: You can re-evaluate the goal you set for yourself. In this example, you could try to choose a cheaper car. – Ceteris Paribus (Keeping everything else unchanged), you can afford a ((3000$ X 15) + 25 000) = 70 000 car instead of a 100 000 car. Timeline: You can change the timeline you had in mind for buying the car. – For example, instead of 15 months to buy the car, it would take you ((100,000-25,000)/3000) = 25 months, given what you can afford. Income: You can supplement your income with additional income that would increase the savings you can afford. – If you found a job that pays 2000/month on top of your current job, your savings goal would be achieved: 3000 + 2000 = 5000/month Expenses: Finally, one of the easiest and yet most difficult methods to achieve your savings goal is to take more responsibility for your expenses. Some ways you can reduce your spending are: – Turn off the heat when you are not around to reduce the electricity bill – Look around for a mortgage or car loan with a cheaper interest rate – Separate needs and wants when shopping – Bundle your services – Cook at home instead of eating out – Track your spending with a budget app

Conclusion

Saving is really as easy as 1-2-3. You just need to remember that to achieve your savings goals you need to 1) Calculate what you need, 2) Estimate what you can afford, 3) If a deficit exists, adjust the four main variables to equalize 1) and 2).

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