Saving money can take on a variety of forms; from saving for a rainy day, building an emergency fund, or setting aside money for college costs and retirement, it feels like there is always something that you should be saving for. Running a small business can require a lot of money, especially to get started, and with any business decision, you could find yourself turning towards the red easier than you think. In this two-part savings series, we are exploring some ways that you can save in your personal life along with business expenses.
Back to Basics
Before we dive into talking about how to save money, we first need to talk about some of the basics of budgeting. One of the most common methods of managing a budget is following the 50-20-30 rule; 50% of paycheck towards fixed costs, 20% towards financial goals, and 30% towards flexible spending. Fixed costs include rent / mortgage, and other bills that go towards necessities like heat and water. Financial goals focus on saving for retirement, building an emergency fund or paying down credit card debt. Flexible spending consists of the day-to-day expenses such as groceries, hobbies, entertainment or gas.
When it comes to budgeting, spreadsheets are an easy way to track your spending. To evaluate where you are, enter your fixed costs and then spend the rest of the month tracking receipts and entering your spending. Saving receipts too time consuming? At the end of the month go through a printed version of your bank statement and use different colored highlighters to highlight your key spending categories. Find spreadsheets too complicated or challenging to maintain? There are plenty of apps, like Mint or Digit, which you can download to monitor your budget and save more money. From there…
Find Where You Can Save
So perhaps this exercise has opened your eyes and shown you that you are way overspending and living beyond your means. You also may find some simple cash traps that you’re throwing money on each month. For example, you may see that there is a subscription you never use even though you pay for it, or you aren’t going to the gym enough for the cost of paying to be worth it. You also may notice trends that you weren’t aware of, like a daily coffee habit or seeing just how frequently you order takeout. When you see these trends, try to put some emotion behind it and understand why you spend the way you do. From there, start to figure out how you can change this. If takeout is your downfall, don’t say you’ll never get takeout – cutting cold turkey doesn’t always lead to success. Instead, give yourself one day a week to order what you want or set a strict monthly limit for takeout.
What is worth saving for?
Each person is different with their money. Some people prioritize saving for vacations, others focus on home improvement, or a new car. While only you can decide what is worth saving for, there are a few general guidelines for saving you’ll want to stick to:
401(k): While you have a passion for your business, you likely don’t want to be running it full time as you get older. To have that flexibility and spend time doing other things, you’ll want to invest in a 401(k). This article from Forbes features a lot of great tips to help you save for a 401(k) along with explaining why it’s something you need to think about.
Emergency Fund: Sometimes unfortunate events arise and you find yourself scrambling for some extra cash. From a car breaking down, or a leak in your house, to worst case situations like the loss of a job or closing a business, you never know when you need some extra money. For an emergency fund, the general rule of thumb is to have enough money set aside to cover at least 6 months of expenses.
Saving money is something that doesn’t come naturally to everyone. With so many expenses and other priorities, saving tends to fall to the bottom of the priority list. Just remember, that while it’s important to pay off other expenses, it’s always more important to pay yourself first and focus on your financial goals.