Hey everyone! Our streak of incredible guest posting continues!!! Check out this post by Des over at HalfBanked.com. Please how some love in the comments and share your thoughts on saving money. Enjoy! ~M$M

If I told you there was a risk-free way to reach your financial goals faster, it would sound sketchy, right? Like I’m the embodiment of all that is wrong with the shady side of financial advice. Like you should run screaming from this article.

But uh, don’t. Because as sketchy as it sounds, there is a risk-free way to reach your financial goals faster.

It’s called increasing your savings rate.

There’s a lot of talk about how your savings rate can help you retire early, or reach financial independence. If you’re a millennial like me, those things can seem dauntingly far off, and you might be tempted to skip all talk of savings rates.

Don’t.

Just because you’re not about to retire and live off the proceeds of your investments quite yet, doesn’t mean that you can ignore your savings rate.

Increasing Your Savings Rate Is a Perfect 20-Something Survival Strategy

Your twenties might be the most expensive decade of your life.

I can’t think of any other time when you’ll be juggling paying for your education, a wedding, a home, a car and maybe even kids. There are just so many goals competing for your income – which is probably at the lowest point it’ll be in your professional career.

Awesome.

That’s why increasing your savings rate is the perfect way to cope with the juggling act that is millennial money. Even if you’re saving for big purchases, not just for retirement, increasing your savings rate can help you achieve your goals faster – and keep you far away from the Dread Pirate Debt.

Here’s a real-life example of how your savings rate can slice your goal timeline in half – without relying on any sketchy investment advice or unsustainably high interest rates.

Buy a House Faster By Increasing Your Savings Rate

I don’t have a house yet, like many of my millennial peers. I want to own a place someday, but buying a house requires a down payment, and with the prices in my area, I’m looking at a minimum of $20,000 – plus closing costs.

I realized this about a year ago, so I set up a savings account specifically for my future down payment, set an automatic $250/month contribution, and calculated how long I’d need to save to hit that $20,000 number.

If I saved $250/month in a high-interest savings account that pays 1% interest, I’d need to save for just under 7 years to hit my goal.

Whoa. Seven years?

Then I ran the numbers. If I was really diligent about cutting back on my expenses and increasing my savings rate to $500/month, I’d have my $20,000 down payment ready to go in just over 3 years.

That sounds much better. That’s the magic of increasing your savings rate, and it applies to every financial goal you have – not just housing or retirement.

How Can You Increase Your Savings Rate?

If you want to get serious about bumping up your savings rate, no matter what you’re saving for, you’ll need to do these three things.

1) Track your spending

This is basically step one to optimizing just about any part of your finances, but it’s even more important when you’re trying to optimize your savings rate. When I first started tracking my expenses, I was shocked to see that my seemingly-herculean savings efforts had only bumped up my savings rate by a few percent each month.

That said, I also noticed tons of areas where I could make small changes that would have a big impact on reducing my spending, like making coffee at home instead of going out for $6 lattes every weekend.

The bottom line is that if you’re serious about increasing the amount you save, you need to track what you’re spending. They’re two sides of the same coin, after all (the pun was right there, I had to.)

2) Set your goals

Once you’ve got a handle on where your money is going each month, you need to set your financial goals. Trust me when I say that there’s a huge difference between “It’d be nice to own a house someday” and “I will save $20,000 for a down payment by April 2018.”

One of those statements will remain a dream forever, and one of them will give you the power to say no to that grande toffee nut latte with coconut milk. At least 90% of the time, it works every time.

I know you don’t just want to save for a car, or just want to save for retirement, or just want to save for a wedding, so when you’re setting your goals, make sure to get it all on the table. Once you’ve done that, you can start to prioritize. If your timeline for a wedding is a year, but your timeline for a house is five years, it’ll impact how much you should be saving, and when, to hit your goals. On the other hand, if the house is way more important to you than the wedding, you might want to save more for that goal regardless of timing.

3) Cut back on things that don’t matter

The fun part of all this attention you’re paying to saving is that you get closer and closer to your big financial goals, they really start to feel real – and attainable. The shift from maybe-home-ownership-one-day to “holy cow, we’ll be buying a house in two and a half years!” is a big one, and it feels pretty great.

You’d think that for all the drooling I do over my cherished lattes, I’d miss them a lot more than I do. That’s the thing though: as your financial goals start to seem real and attainable, it gets even easier to say no to spending on things you don’t value as much.

So as you’re setting your goals and tracking your spending, look at each category really closely. Is there something you can do to cut back on spending in an area that doesn’t matter all that much to you?

It doesn’t even have to be as extreme as moving into a camper van to save money on housing – unless that aligns with your priorities, that is!

At the end of the day, the trick is there really is no trick. To increase your savings rate, just pay attention to your spending, pay attention to your priorities, and cut back on the spending that doesn’t match your goals.

That’s it.

It sounds simple, but by doing those three things, I’ve managed to cut my spending and increase my savings rate to almost 50% of my income. I’m not on track to retire anytime soon, but I am funding an emergency fund for myself, an emergency fund for my dog (I know, I’m that girl) a house down payment, a vacation fund and a fund for bigger house purchases.

Oh, and I’m saving for retirement. Because you can’t just skip out on that sweet, sweet compound interest in your 20s.

So there you have it. Increasing your savings rate is the risk-free, foolproof way to survive the competing financial goals of your 20s, and actually reach them in your 20s.

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November 9, 2015Posted in: Tips And Hacks