Personal Finance 101: How to Save Money for Financial Freedom

Investing in Today’s Economy

With today’s cost of living, it can be hard to “find” money to invest in your future. According to U.S. Bureau of Labor statistics, a single person household has monthly expenses of about $4,641, a married couple spends $7,390, and a family of four spends around $9,000. In Figure 1, we can see the average expenses in different categories. On the other hand, the take-home salary for an average American (after taxes) is $58,389. This means that the average person has around $200 dollars left at the end of every month.

Figure 1: Expense Allocation Averages

Often times though, that $200 is not around at the end of the month. Every time I felt like I had extra money, it would somehow just disappear. Sometimes it would be on some fast food or maybe I would buy myself something. The last thing most people think about is hanging on to that couple hundred dollars to invest in the future. Especially people who are younger like myself, who could easily find 100 other things to do with that money. Even though I still want all of those things, I decided that I want to start investing in my future more. The key for me is delayed gratification. Save the money now and invest it to see the results down the road vs. feeling 5 minutes of pure dopamine from that hamburger. I also found other ways to save money along the way.

Where to Save Money.

For me to start this journey, I had to look at where I could cut costs in my spending. To do this, it is important to first track your expenses and see exactly where your money is going. I spent my money like normal and just kept track of all expenses. There are a few different ways to do this. There are budget templates in Google Sheets, Excel, or apps like EveryDollar. After the first couple months, I realized there were definitely some places to save money…especially when it comes to eating out. Other people struggle in different areas, such as buying themselves expensive items or going out too much. Gaining awareness of where my money was actually going, the next piece was to create a budget. Aka to take ownership of my money.

Creating a Budget

When creating a budget, the same templets and app mentioned above can be used. I went back through the costs I had for the previous months and put the expenses that could not be cut into the spreadsheet such as rent and gas. Then I looked at the things like fast food and put in a reasonable amount as a goal to achieve. It was also important to me to budget in money to pay myself first. I think this is something that many overlook and it is the reason that the money isn’t around at the end of the month. I like to pay myself in three ways: putting money away for spending or fun money, for emergencies, and for investing. There is no reason to stop spending money on fun experiences or nice things; but for me it is important to set that money aside so that it is budgeted in. I set aside $100 dollars a month for each of these three things. An emergency savings is also important to me in case something happens to my vehicle or I have another unforeseen expense. Investing in my future is also important to me because it is going to give me the freedom I want to live the life I want to live. The $100 doesn’t seem like a lot, but it is a great place to start. I am going to document my actual investing journey through my newsletter coming in the next couple of weeks. I believe it will help others see that they are not alone while providing insight into value investing techniques.