Saving money – it’s something many people struggle to do (especially during a pandemic), but it’s critical for personal financial stability. Making a conscious effort to save money has financial as well as psychological benefits, promoting the kind of security that brings peace of mind.
Jeff Sobieralski, TCU’s Director of Financial Wellness and Wellbeing, understands the financial strain the pandemic has created and shares some words of wisdom.
“During anxious times, it’s important to remember stress is different for everyone, and that individuals vary in how much uncertainty they can tolerate,” Sobieralski said. “To help our members deal with financial stress, if possible, I recommend they make one financial decision at a time. It’s easy to become overwhelmed when faced with multiple, back-to-back decisions.”
Identifying financial stressors and planning realistic ways to eliminate them is one of the first steps in managing your finances. To get started, Sobieralski recommends writing down your three biggest money challenges — keeping the list short to help you feel less overwhelmed.
Whether it’s paying your bills, reducing credit card debt or saving for retirement, it’s important to focus on the main sources of your financial anxiety. And just like an intense new workout routine can lead to burnout, you don’t want to set overly ambitious financial goals that you may quickly abandon.
“Try to stay positive and be realistic,” Sobieralski said. “Determine what you can reasonably achieve and then make yourself a promise. For example, ‘Each month I will spend less and put the difference toward my debt.’”
Committing to a plan usually means creating and sticking to a budget. Sobieralski says he’s a fan of the popular 50/30/20 budget. In it, you spend roughly 50 percent of your after-tax dollars on necessities, no more than 30 percent on wants, and at least 20 percent on savings and debt repayment. Over the long term, someone who follows these guidelines will have manageable debt, room to indulge occasionally, and savings to pay unexpected expenses.
He also cautions that every budget needs some “wiggle room” — to cover bigger than anticipated expenses and to free up some money to spend however you want.
“Your budget is a tool to help you make the most of your money, not a barrier to keep you from enjoying life,” Sobieralski said. “The most important thing to remember is to spend less than you make.”
He says there are many free budgeting tools available these days for controlling your finances, including the apps Mint and BudgetGuard. TCU offers a household budgeting calculator that can help you run the numbers. And if you’ve had difficulty budgeting your money in the past, you may need some patience and perseverance.
“A budget is a lot like learning how to walk,” Sobieralski said. “If you fall, get back up and try again. It may seem like it's a lot of work to start, but before you know it, it will be second nature.”
When it comes to paying down high-rate debt, Sobieralski again suggests starting with a pen and paper. He says to make a list of all of debts organized by balance and annual percentage rate (APR).
Mathematically, the most effective way to eliminate debt is to follow the “avalanche” method, where you pay the minimum balance on each obligation, then dedicate as much as you can each month to the bill with the highest interest rate. While the avalanche method can make sense from a numbers perspective, it’s not always the best choice.
“I recommend that members go with the ‘snowball’ method, where you focus on paying down the account with the smallest balance,” Sobieralski said. “By prioritizing your smallest debts first, you gain momentum by watching debts disappear — as you would watching a snowball grow bigger and bigger, and that motivates people to continue.”
Finally, Sobieralski is a fan of tricking himself into saving money. And one of his favorite tricks is the zero-sum budget, which forces him to hide money from himself every month. The central concept of a zero-based budget is to set up multiple savings accounts and assign a dollar amount for each account, like a bill you pay to yourself, in a given month.
“Think of an expense as absolutely anything you put money toward, whether it’s bills, savings, or investments,” Sobieralski says. “At the end of the month, there should be zero unspent or unassigned money remaining in your budget.”
He says if you name one savings account “vacation” and the other “emergency,” your mind will treat those accounts as such, and it’s easier to stay on track. It’s a tool that helps him save in other ways too.
“My wife and I have an account identified for insurance,” he says. “When we pay our premium upfront for the entire year, instead of monthly, it’s saving we put toward other expenses.”
For more information about saving money effectively, or the benefits of becoming a credit union member, visit TCU at www.tcunet.com.