Over the last 12 months, COVID-19 has resulted in many individuals being forced to save money. Shops, restaurants, bars, cinemas, concerts, and many other establishments have remained canceled or closed, resulting in people not being to spend as much on entertainment as usual.
Personal savings in the U.S. hit a record high of 33% back in April 2020 as American households stockpiled cash and curbed spending. Hoarding money is definitely not the best option. Instead, learn how to start saving for investing.
Here are some of our favorite money-saving tips.
1. Rainy Day Fund: Building a financial cushion will soften the blow if your money situation changes due to a job loss or unexpected expense. Having a rainy day fund will prevent you from selling your stocks too early. We advise saving three to six months of living expenses.
2. Reduce your bills by:
(a) Learning how to cook: Cooking in bulk and bringing your own lunches to work will you save a fortune by cutting out on takeaways and expensive lunches.
(b) Cutting the cord: Cancel your cable subscription, which costs on average $75 a month for a mid-level plan. Instead, download Netflix or Disney+ to save over $792 a year.
(c) Finding cheaper transport: If you drive every day, you could save a lot of money on gas and parking by using public transport or cycling.
3. Use auto savings: An easy way of saving money is using an auto-savings feature on an online banking app which rounds up your spare change to the nearest dollar and puts it in a separate 'savings' vault. Setting up an automatic transfer from your debit account into a savings account is another option.
4. Track your spending: Carefully track your spending by breaking down your expenses into specific categories, like 'groceries vs. restaurants', or 'rent vs. utilities'. Tracking your expenses will quickly show you where you can cut costs.
5. Create a budget: Map out your monthly income flows, including your salary and any other forms of regular income. Next, deduct set monthly expenses like rent, mortgage repayments, car insurance, phone bills, etc. You should also deduct a set amount of money (ideally, 10%) to put into a savings account. Then, give yourself a rough budget for necessities like groceries, cleaning supplies, toiletries, and transportation. Whatever remains is your "flexible" money for socializing and entertainment.
Budget more effectively by...
*Bonus Tip: Check out MyWallSt's 8 Best Investing Apps of 2020. Here are our top three favorite budget apps:
6. Manage debt: While we can't predict how much you are going to make on Wall Street, retiring a debt with a high-interest rate can easily free up funds to use towards investing. Young investors should focus on paying off their short-term, high-interest debt as soon as possible whilst continuing to pay off long-term debt like student loans. Know your debt and interest rates:
(a) Understanding the debt you owe and the interest rates you're paying for each is crucial. High-interest credit cards can charge fees of up to 20%, whilst student loans carry interest rates of over 10%.
(b) Plan: Make sure to track and plan the debt you pay as part of your budget. Think of debt in the same way as any other bill or monthly expense you have to pay.
(c) Pay off high-interest debt first: You should always contribute more money to the loan or credit card with the highest interest rate first to save on monthly interest rates while still paying off your loans.
7. Be careful with credit cards: Credit cards don't automatically lead you to debt. In fact, a credit card can actually work to your advantage by earning you rewards for using them like air miles or cash-back on certain purchases. They are useful to have in an emergency and can help build your credit score, but be responsible when using a credit card by:
(a) Paying it off on time, every month: Pay off the balance owed every month to reduce the risk of being charged late fees or paying hefty interest rates
(b) Use your credit for big purchases only: Don't rely on your credit card to fund day-to-day purchases, as your charges will not only be a lot more frequent, but also harder to track.
(c) Be wary of minimum payments: Making a minimum payment will not affect your credit score, but it will mean that interest is still being charged on the remaining balance.
8. Plan for retirement: A common goal of investing is to plan for retirement, so make sure you are taking full advantage of the inducements offered by the government and your employer. Experts recommend a Roth IRA for 20-somethings as they are more likely to be in a lower tax bracket than they will be at retirement age. Having a secure pension, on top of a diversified portfolio, can encourage you to take risks on the stock market.
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MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.
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