If you want to reach your long-term financial goals, you first have to identify what they are and then have an idea of how much money you’ll need to reach them.
You need to give each of your big goals an estimated price tag, that way you can be sure you’re putting enough money away each month for each specific goal. Making a mental note is not enough. If you don’t have a specific plan, it will take you longer to get out of debt and you will very easily reach the point when you’re ready to make a big purchase and you won’t be financially prepared.
Here’s an example:
Let’s say you want to buy a $250,000 house in five years. The cost of a down payment will depend on type of loan you get, but typically you will need between 5% and 20% of the home’s sale price in cash for a down payment. And the higher the down payment, the lower your mortgage rate will be.
If you plan to put 20% down, you’ll need $50,000 in cash. So to reach that goal in five years, you should be saving roughly $850 a month.
2. They automate their savings
One of the best ways to save more money, and keep your savings on track, is to make it automatic. If you don’t automate your savings, you’re much more likely to reach the end of the month and realize you’ve spent what you had planned to save.
So once you figure out how much you can save each month, set up your paycheck’s direct deposit to automatically send that money into savings. That way the cash is saved before you have a chance to spend it.
If the money sits in your checking account all month, borrowing from yourself and your savings becomes way too easy. Regardless of how disciplined you think you are — even giving yourself that option can very easily throw your goals off track.
3. They know the difference between needs and wants
This can be a tough one for a lot of people, because saving more money often requires change.
But here’s the thing, nothing about your financial life will ever improve or change, unless you decide to make it happen. And this doesn’t necessarily mean you have to turn your life upside down — there are tons of ways to cut costs and save more money without dramatically changing your lifestyle.
With that said, it really depends on your individual routine and lifestyle. If you’re spending more than you make — on things you don’t really need — you’ll never get ahead financially and it’s time to switch things up.
Figure out what’s important to you — both now and in the future — then make sure that your current lifestyle is aligned with your goals and the future life you want to have.
The longer you continue living paycheck-to-paycheck, the more difficult it becomes to break the cycle. So the earlier you learn to spend less than you make, the sooner you’ll be able to have a confident and empowered relationship with money.
And it’s not about the amount of money you make, it’s about adjusting your habits and lifestyle in order to improve your life both now and down the road. So when you do start making more money, you can really benefit from the added income, rather than waking up one day and realizing you have no idea where it all went.
Once you start making small changes to your spending routine, you will quickly realize how big of an impact it can have on every aspect of your life. Each step you take, like paying off a debt or getting closer to a savings goal, will give you even more motivation to keep going, because you’ll be able to see the increasing control you have over your own life and your own money.
Start by going through your monthly expenses and take a good hard look at where all of your money is going. If an expense isn’t aligned with your plan and goals, get rid of it.