Step 4 of Effective Money Management: Retain

You've learned how to create a budget, track your expenses, and categorize them. You've also reconciled your accounts, which means you have an accurate picture of your financial situation. What's next? It's time to retain your hard-earned money by saving a portion of your income.

Retain is the fourth step to effective money management. The idea is simple: pay yourself first by setting aside 10% of your income before you start paying your bills and other expenses. Once you've done that, use the other tools we've discussed to manage your remaining income so that at the end of the month, you can pay yourself again.

The goal of saving is to build an emergency fund of at least 6 months of monthly expenses. This fund will help you weather any unexpected expenses or income disruptions, such as job loss or illness. It's important to prioritize building your emergency fund before paying down debts or investing for the future.

But how do you start saving if you're not used to it? Here are some tips:

1. Start small: If you can't save 10% of your income right away, start with a smaller amount and gradually increase it over time.

2. Automate your savings: Set up an automatic transfer from your checking account to a savings account each month. This way, you won't have to remember to save, and you'll be less tempted to spend the money.

3. Shop around for lower rates: Review your bills and see where you can cut costs. Consider negotiating with your cable, internet, or insurance providers to lower your rates.

4. Make savings a priority: Treat your savings like any other bill that needs to be paid. Make it a non-negotiable expense each month.

For those who are already saving, here are some tips on how to increase your savings rate without feeling the hit:

1. Increase your savings by 1% each month: Gradually increasing your savings rate can help you adjust to the change in your budget.

2. Save your windfalls: If you receive a bonus, tax refund, or other unexpected income, put it directly into your savings account.

3. Use cashback rewards to save: If you have a credit card that offers cashback rewards, consider putting the money you earn into your savings account.

Remember, saving is a habit. The more you do it, the easier it becomes. Start small and gradually increase your savings rate over time. After all, the best time to start saving was yesterday, but the second-best time is today.

So, pay yourself first, build your emergency fund, and watch your savings grow. Your future self will thank you.