How to Take the Stress Out of Handling Money
(8 Minute Read)
Bottom Line Up Front: The purpose of saving money is to be financially prepared for an event in the future, either planned or unplanned.
Having a plan to save money is the greatest tool you can use in your journey to financial success. Saving money for a planned event can prevent you from going in to debt unnecessarily, especially when making large purchases such as going on vacation or buying a car. When an unplanned event comes your way, an emergency savings can also prevent you from going in to debt unnecessarily like when an unforeseen issues arise such as repairing the transmission or booking a last-minute flight to visit a sick family member occurs.
While saving money can help prevent you from taking on debt, there is an even better reason to save money, one that is my biggest motivator to saving:
Saving money takes the stress out of a stressful situation.
Hear me out. If you have money saved for a future event, whether planned or unplanned, when life happens–you are prepared.
Let’s go through a few examples of how saving money can take the stress out of a stressful situation:
Scenario #1: Your spouse works outside the home and you both rely on the second income for your family’s household expenses. Let’s say an unexpected event hits (e.g. COVID-19) and your spouse is out of work for the unforeseeable future. If you have an emergency savings, or maybe you saw this coming and saved extra cash each month leading up to this, this event is much less stressful because you have the cushion of cash to help with the household expenses until your spouse is able to work again.
Scenario #2: The dreaded “check engine” light comes on in your car. When you are able to take it in to the shop, it turns out to be a cracked head gasket, and the estimate for repair will set you back $400. Based on your current month’s budget, you simply aren’t able to write a $400 check from all that leftover cash you have at the end of each month. However, you had been saving $50 each month for unexpected vehicle repairs, and are able to tap into that savings and get your car repaired by next week.
Scenario #3: You got the call that your grandmother is in the hospital, and the doctors do not know how much longer she has. You and your family are very close, and you need to go and see her while you are still able. You get the leave approved and are ready to head out, but last-minute flights cost upward of $600 round-trip. You don’t have that much money to spend on a whim, but you had been saving some money each month for a vacation and decide this is the time to use your travel savings to go home to see your grandmother and be with your family during this time.
The scenarios are endless, but these make the point–having money put away in savings takes the financial stress out of the equation in an already-stressful situation.
As I said before, I will say it again…military members, we are all very disciplined in numerous aspects of our lives, from our work, to training, to maintaining physical fitness and even balancing work-life-school-family-everything else in the world. Since we are so disciplined in these areas in our life, why not try bringing a little bit of that discipline in to our finances too?
Saving money is essential for meeting your financial goals and taking the burden of financial stress out of your life.
If you earn money, you need to save some of it.
Saving money is something that every person should create, and I’ll outline the criteria below regarding whether or not you need to save:
If you can answer “yes” to the question below, you need to save money:
Do you have an income of any kind?
If you answered “yes” and determined that you need to have some money saved to be prepared for the future, where should you get started?
Where do I begin?
Saving money is the easiest financial principle to understand…but the probably the hardest to actually follow through with. Understanding how to save money is incredibly simple–don’t spend the money and just put it away for the future. Actually saving the money can feel much harder, but this is why you start with a plan!
The plan to saving money can be done in three easy steps:
- Step 1: Determine what you are saving for
- Step 2: Calculate how much money you will need to save
- Step 3: Decide where you will place the saved money
That’s pretty much it! Again, the concept of saving money is really is. What gets most people caught up is the actual action of saving the money. By following through on this plan, and remembering the why, as in “why am I saving this money?” will help keep you on track to meeting your saving goals. Let’s take a more in-depth view on how to follow through with this plan.
1. Determine what you are saving for
You can save money for just about anything on earth. It is true, some things are much easier and quicker to save for than others, but even large purchases can be bought in cash. Saving for a weekend trip won’t take as long as taking an international vacation, but the concept of saving will work for both–one will simply take longer to save for than the other, but again, it is not impossible.
First things first, decide what it is you are saving for. My husband and I recently bought a new-to-us car that we paid for completely in cash. I will use this large purchase as an example of how to work through the three-step saving plan.
When you decide what you are saving for (ie: family vacation, trip back home, new-to-you car, a hobby purchase like a guitar or hunting equipment, or even a new house), keep that goal in the forefront of your mind. Remember that saving for something will require you to delay that gratification, but you are doing yourself and your family a great favor in the long run by avoiding going in to debt for this purchase.
Once you have determined what that thing is that you are saving for, you will need to calculate how much money you will need to make the purchase.
NOTE: If you are saving for an emergency fund, check out my article on “What is an Emergency Fund” and “5 Simple Ways to Save for an Emergency.” The principles listed in this three-step savings plan should also be applied to saving for an emergency fund.
2. Calculate how much money you need to save
If you planned to purchase a car, consider how much money you are able to afford to spend. If you are not making six figures (which, newsflash, those of us in the military are not), then you should look at what is realistic for your family to spend.
If you calculated you are able to save $5,000 for a new-to-you car, this next part will require a little bit of math. Simply look at the budget you created for your household and see what disposable (or leftover) income you can use to save.
Let’s say you plan to spend $5,000 for a car, and you can save $300 per month. This means it will take you approximately 17 months to save $5,000 to purchase your car (just under a year and a half). I got this number by doing the math:
$5,000 for the car ~divided by~ $300 saved per month = 17 months
Another way to calculate to meet your savings goal is this: Let’s say your car broke down and you need to get a new one within the next 6 months. If you still want to look at buying a $5,000 car, then you will reverse-engineer this math by looking at it this way–if you want to purchase this car within 8 months, then you will need to save $625 per month. I got this number by doing the math:
$5,000 for the car ~divided by~ 8 months to save for the purchase = $625 per month
Saving for any purchase is simply done through goal-setting, which means you should have a SMART goal in place. Your goal should be:
Specific (save for a car)
Measurable (save $5,000)
Achievable (I have $300 extra per month to save for this)
Realistic (I can fit this in to my budget and still pay for food and rent)
Timely (I can wait 17 months to purchase the car)
3. Decide where you will place the money
Once you have decided what you will save for and have calculated how much you will need to save, you must decide where you will place the money. DO NOT — I repeat — DO NOT simply keep the money in your checking account…it will inadvertently be spent.
There are several places you can store this money, but the three places I recommend are:
- In cash
- In a separate savings account
- In a money market account
If you have this savings separate from your checking account, you will be able to see how much progress you are making and ensure you are on track to meet your savings goals.
Final Thoughts
That’s all folks! Saving money is easy to understand, but can be difficult in practice. The key is to have a plan and stick to it!
Saving money is a necessary step to achieving your financial goals–but it is also crucial in helping take stress out of the equation when you are dealing with a stressful situation. Understanding this financial concept is incredibly easy in theory, but it can be difficult in practice. Simply make a plan and get started.
As always, I am here as a resource to help guide and review your savings plan if you have questions, reach out! Comment on this page, or send me a message if you would like a personalized coaching plan on how to better allocate and track your money to reach your financial goals. Grab a cup of coffee, turn on your favorite playlist and get started!
