Getting into the saving habit

By Julie Bawden-Davis

When it comes to money, is your first thought spending rather than saving? Do you truly want to save, but find that every time you make some progress, you backslide and blow your budget? In order to meet your savings goals and fund your dreams, it's important to adopt a saver's mindset. The truth is, if you can spend without thinking, you can switch things around and save without thinking too. These steps can help you create a savings habit.

1. Commit to saving

Vow to make saving a top priority. Once you decide how much you want to save each month, look at your savings as a nonnegotiable bill like your utility payments. Get in the habit of putting the savings into a high-yield savings account or money market account at the same time every month.

2. Track your spending

Recording what you spend may seem like busy work, but the truth is the exercise serves a variety of purposes that will help ingrain the saving habit. Tracking your spending makes you aware of when you're spending your money and on what. Knowing what you spend trains you to think about every purchase and helps you develop a realistic budget for meeting your financial goals.

3. Automate your savings

Put your savings on autopilot and pay yourself first through an automatic deduction savings plan. Many banks and financial institutions will transfer a set amount on a regular basis from your checking account and put it in your saving account. Over time, you will become accustomed to the withdrawals and learn not to miss the money.

4. Start small

Going cold turkey when it comes to spending and saving has risks similar to a crash diet. You may do okay cutting back on expenses and saving for a short period, but then become overwhelmed and overspend. Start saving small amounts initially as you become accustomed to reducing expenses. Cut back by 25-50 percent for the first month, and keep making small cuts and redirecting the funds to savings until you reach your goals.

5. Take the Need Test

Before you make a purchase, ask yourself several questions about whether you really need the item. Even if you do decide to buy, you'll be doing so after consciously considering your saving and spending goals. You may find that a particular purchase fits into those goals.

Prior to parting with your money for something, ask yourself a few key questions, such as why do you want to buy the item? What will happen if you don't buy the item? What will you do with it? And have you ever had one before? There is a decent chance that you don't truly need something if you've survived this long without it.

6. Calculate and consider your net worth

Your net worth refers to your assets, which is the total value of what you own, minus your liabilities, which is the total amount of what you owe. What a "good" net worth entails is subjective. Only you can know what you'd like to strive for financially. Tracking your net worth is an effective way of keeping your financial situation and goals in the forefront, which should motivate you to make sound financial decisions.

7. Regularly review your financial goals and progress

Monitoring your financial situation at least once a week keeps the subject at the top of your mind. Have a meeting--even if it's with yourself--about your progress. Analyze what you're doing right and what you can do better. Take the time to list financial goals, the steps you must take to reach those goals and target deadlines for completing each task.

8. Celebrate financial milestones

Getting in the habit of celebrating when you pay off a loan or reach a savings goal puts saving and debt reduction center-stage in your life. After meeting a financial goal, treat yourself with a small and inexpensive reward that means something special to you, such as a pizza and a movie.

9. Examine your motives

If after trying all of the above suggestions you still find that you're buying instead of saving, it's time to take a close look at what compels you to spend. The next time you have an urge to purchase something, stop, take a breath and look closely at what you're doing and why. You may find that you buy in response to stress or boredom, or because there are areas of your life you prefer not to examine. Knowing why you're about to spend can help you refocus on saving and may stop you from making an ill-advised purchase.