If there’s one thing that troubles most people financially, it has to be saving money. This is because, it isn’t straightforward how much of your income you should save, where you should save your money and how you should do it in the first place.

Moreover, most people nowadays aren’t in stable jobs. Most people work in projects as freelancers or they keep switching their jobs, hence their incomes aren’t static. In addition, as you grow older, your financial goals keep changing and hence your savings and expenses keep on changing too. 

As a result, saving money has not been a walk in the park for most people.

In his book Just Keep Buying, Nick Maggiulli writes,

 “One of the most common financial stressors is whether someone is saving enough.

As Northwestern Mutual noted in their 2018 Planning & Progress Study, 48%  of U.S. adults experienced “high” or “moderate” levels of anxiety around their level of savings.

This implies that saving more is only beneficial if you can do it in a stress-free way. Otherwise, you will likely do yourself more harm than good.”

As Nick concludes, even high savers end up doing themselves more harm than good because they never cease to worry about their savings habit.

In this article, I will take you through the ins and outs around saving money. We will discuss why saving is important, how much you should save, how you should save and where you should save your money.

Why Should You Save Money?

Saving is the foundation of financial success. Hence the saying, it does not matter how much you earn, what matters is how much you keep.

In the Psychology of Money, Morgan Housel writes,

 “Wealth is the accumulated leftovers after you spend what you take in.

And since you can build wealth without a high income, but have no chance of building wealth without a high savings rate, it’s clear which matters more.”

To echo his words, you can build wealth without a high income, but you have no chance of building wealth without savings.

How Much Money Should You Save?

Most personal finance gurus try to give everyone a percentage of their income that they should save. For some it’s 10%, 15% or even 25%. 

In his book, Just Keep Buying, Nick Maggiulli takes a different approach,

He writes,

”Saving rules like ‘save 20% of your income” are so misguided. Not only do they ignore fluctuations in income but they also assume that everyone can save at the same rate which is empirically false.

When we have the ability to save more, we should save more- and when we don’t we should save less. We shouldn’t use static unchanging rules because our finances are rarely static and unchanging. 

That is why the best saving advice is: Save what you can.”

As Nick concludes, you should save what you can all the time.

How To Actually Save Money

There are people who no matter how hard they try to save money, they end up either never saving anything at all or saving too little. Not because they have low incomes that makes saving hard for them. But because they prioritize expenses, even the unnecessary ones and save last.

If you are one of those people who struggle a lot with saving despite your high income, it’s time to change how you save your money.

Do not save what is left after spending, spend what is left after saving. This means that you now start prioritizing your savings first. 

When your salary hits your account, you first deduct a certain amount, put it in your savings account, and then you can spend everything else if you want.

Where Should You Save Money?

The question of where you are saving your money depends on one major factor. How soon will you need the money? If you want to access your money within three months, it’s okay if it just sits in your bank account. The interest it will have accrued elsewhere like in a money market fund is very little unless its huge amounts of money.

When you are saving money that you don’t intend to use for the next three months, but you may need to access it anytime you want in case of maybe an emergency or to cater for some short term goals, then Money Market Funds is the best place to save your money.

This is because money market funds offer you an interest rate of around 7-10% and you can also easily access your money within 2 days of asking.

Most importantly, your money is safe as it is very hard for you to lose your money in a money market fund account. This is because the only time you can lose money in your money market fund is if the money market fund is mismanaged.

What Next After Saving Money?

There are different classes of savers. There are people who save with a goal in mind while there are others who just save money for the sake of saving.

While the two groups are actually doing well by saving part of their income, saving with a goal in mind or for a purpose has an edge eventually.

People who save without an end goal end up having huge amounts of money in their bank accounts that could have been otherwise invested to generate more money and grow their wealth.

Earning money is the first step, saving is the second step and investing is the third step to attain financial independence.

While there are people who save most of their money to cater for other expenses in the near future, make sure some portion of your saved money goes into income generating assets like stocks, government bonds, real estate or businesses.