On the surface, the world economy is recovering. In the US, unemployment is decreasing, new jobs are always opening, and stock markets are climbing.
But this upbeat picture gains grimmer undertones when you look at people’s lives more attentively. On closer inspection, you start doubting that the economy is as stable as unemployment numbers and stock market activities make us think. Other polls and figures reveal that for the majority of Americans, life is beset with financial struggles. Thus, 40 percent of Americans do not have enough savings to cover a $400 emergency expense: either an unexpected medical bill or home repair. Forty-three percent of people do not earn enough to cover the combined cost of housing, food, child care, transportation, and cell phones.
Twenty-two percent of people cannot pay all their bills every month.
Other equally alarming statistics prove that we are living in difficult financial times: people skip medical care and cannot invest in retirement, because they do not have extra money to spare. Like any other difficult financial times, our present economic condition calls for some solutions at least on a personal level. Learning how to save money seems to be vitally important for anyone who can identify with any group mentioned above. In what follows, we are giving several pieces of advice on how to put money aside, starting from budgeting your expenses to signing up for acorns app. Stay assured that if you take necessary steps towards managing your finances more carefully, you will be able to weather any storm that might sweep over our economic world.
There are indeed different measures, old fashioned and extremely innovative ones, that you can take to save money every month. But every financial analyst would tell you that first and foremost, you need to learn how to budget your expenses if you want to end your month with money left in your bank account. Budgeting does not mean that you need to turn into a miser, depriving yourself of all essential needs and pleasures and counting every penny à la Molière’s Harpagon or Dickens’s Scrooge. Budgeting will instead allow you to gain insights into your financial situation and your extravagant habits and, in so doing, eliminate only those expenses that are truly unnecessary and extravagant.
To achieve this goal, you need to write down your every spending for a month or two. Keep all your receipts and jot down how much cash you pass into the hands of sale assistants and other people. Such practices might be tedious and even demeaning, but this is the only way discovered so far to track your money. To gain a clearer picture of your finances, list your expenses according to different categories: your rent, bills, car, medicine, food, and entertainment. When you do this for a few months, you will understand where your money goes, where you overspend, and into what areas you can forgo investing altogether. After you sum up all your monthly spending, deduct the received amount from your wages and, having analyzed what is left after the deduction, decide how much money you can put aside.
Or try such an experiment to control your monthly spending: pay only by cash for all purchases you make during one month. After you have received your monthly salary, withdraw an amount of money sufficient for two weeks, put it into an envelope, and take some of it out every time you need to make a purchase. When the amount of money you can spend is limited, you will quickly start making more informed buying choices. The problem is that we do not physically feel the money we spend when we are swiping our credit or debit cards. Therefore, we often drop our guard and waste more money than we think we do, when we buy goods on credit. But when you have only physical money in your wallet, you keenly feel how it is diminishing and will think hard every time you want to buy something. This method will teach you to be selective in your purchases. By the end of the month, you will be surprised to see how many unnecessary items you did not buy and how much money you saved compared with the previous month.
These are what you would call old-fashioned ways to save money. But there are also popular applications designed to help you put money aside. Acorns, Wealthfront, and Betterment, are such applications gaining popularity among young people. By merging the robo-advisor model with an automated savings tool, Acorns, for example, helps people save loose change with its system called “round-ups.” This investing application automatically rounds up your purchases on linked credit or debit cards. After this, it puts the change into a computer-managed investment portfolio. Thus, if you buy Men’s Health for $4.50, Acorns rounds this amount up to $5.00 and invests $0.10. Users who upload Acorns application may choose among five different portfolios, ranging from conservative to aggressive.
What is also highly attractive in this app is its conspicuously low fees. You will pay only 1 dollar a month if your account has a balance under $5,000. If your account is over $5,000, you will pay 0.25% of the balance per year. There is no denying that, compared to traditional management or mutual funds, Acorns’ fees are as low as they can ever get. Nor is the required investment large. While some advisory services require an initial investment of a minimum $25,000, with Acorns, you may invest such a meager amount as $5. Another strong point of this application is its friendliness to users. Its simplicity and low fees have already attracted more than three million people. The company’s another application, Acorns Later, helping people save for retirement, had 100,000 users in its very first month on the market.
If you want to try innovative ways of saving, either for later periods of your life or for retirement, Acorns may be to your liking. If you are a novice in investing, you will find Acorns’ website particularly helpful, because it is jargon-free and explains financial terms exceptionally clearly. Acorns also publish its online magazine titled Grow Magazine and containing information about credit card debt, student loans, and stock markets, among other financial subjects.
Another platform that advice users on how to make investments are Wealthfront. Focused on both experienced and inexperienced investors, this application has user-friendly portfolios and advanced tax optimization strategies. Its software rebalances portfolios when an asset class moves away from its target allocation rather than on a quarterly or yearly schedule. In other words, Wealthfront uses threshold-based rebalancing. The app covers different stock markets, dividend stocks, real estates, and natural resources. It also allows investing in emerging markets bonds, US government bonds, and corporate bonds. Any portfolio that Wealthfront offers contains up to eight asset classes. Its fees are higher than those of Acorns, and so is its initial investment. Wealthfront charges 0.25% for management and asks to put $500 when you open an account with it. It also has a referral program: when you convince your friends to open an account and fund it, Weathfront charges you or your friends no fees on $5,000.
It is entirely up to you which of these methods of saving money to choose. You may download cutting edge applications or keep your extra coins in a pig money box at home. What is rather important to realize is that the art of saving money is not hard to master and that your proficiency in it will get you through the darkest economic times.