How To Become An Effective Saver

Just before the financial crash of 2008, the Western world had essentially gone mad. For the first time in history, the savings rate in many countries, including the US, went negative. There was such enthusiasm and buoyancy in the economy that people felt like they could spend like there was no tomorrow. Credit cards and loans were used to finance all sorts of frivolous consumption. It wasn’t like people were saving to invest in things that could then increase their wealth in the future. They were chucking it away on holidays, horse riding lessons and expensive cars. When the crash eventually did come, many people had nothing in the bank to see them through the hard times.

This is why it’s so important to be an effective saver. What’s more, given how unbalanced the world economy still is, it’s highly likely that we’ll see another crash before the end of the decade. (And there are signs that a sort of crash is already underway.)

In a nutshell, we need to be prepared. But how? With finances now stretched across the West, many individuals families struggle to save any of their income.

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There are some simple things you can do to stop the paycheck to paycheck lifestyle that can be quite stressful. One is to have a written plan of your budget. A written plan can make concrete where your money is being spent. It’s often the case that we don’t actually know why our money is disappearing each month, so just tracking how we spend can help. Perhaps that $4 coffee you get each morning is what is getting between you and being able to save a part of your income.

You then want to make sure you’re removing the temptation to spend. A good way of doing this is to make sure that when money comes into your account, a fraction of it is automatically taken and put away into a savings account. Perhaps this is more psychological than real, but it means that you can run your checking account to zero, and still have savings elsewhere.

It’s also worth setting a personal financial goal. Having a reasonable goal can motivate you. Think about why you want to save. Is it for a deposit on a house so you can get out of that rented apartment? Is it for your children’s education? Having a clear goal in mind is essential for keeping you motivated – as is having a reasonable goal. Don’t pretend that you can go from borrowing hundreds of dollars a month to saving hundreds. Try to break even first, and then work from there.

When you do save up some money, make sure you look around for the highest CD rates. Having a high rate of saving on any savings account means that you’re going to feel more motivated to save.

This is something that’s hard to find in an economy with chronically low rates of interest. Moreover, you’ll also get more interest payment for a given principle. So not only will you be saving, you’ll be getting the maximum reward for your effort.