Picture this: It’s the end of the month, and your wallet is feeling lighter than it should. You’ve paid the bills, covered the essentials, and maybe even treated yourself to a dinner out with friends. But as you tally up the numbers, you can’t help but wonder, “Where did all my hard-earned money go?” If this scenario sounds all too familiar, you’re not alone. Many of us have been there, juggling expenses, striving for financial security, and dreaming of building wealth for the future. It’s a journey that requires not just diligence but also the right strategies to make every dollar count.

In this post, we’ll explore five essential aspects of managing your finances and building a brighter financial future. From celebrating small budgeting victories to harnessing the power of saving, setting SMART goals, creating a savings blueprint, and prioritizing high-yield savings accounts (HYSA), we’ve got you covered. So, if you’ve ever wondered how to turn those budgeting woes into financial wins, read on. It’s time to take control of your finances, celebrate your progress, and pave the way to a wealthier future. Let’s get started!

Celebrating Budgeting Wins and Progress

Making a change to your spending patterns to be within some controlled budgeting parameters is not an easy thing to do. That’s why it’s important to focus on the wins, however small. These help to reinforce that you CAN do this and the celebration element injects positivity into the overall effort. This also reinforces a core belief of mine: Continuous Improvement. The premise is straightforward; be aware of ongoing improvement opportunities and continue to take small steps to address them (official definition here).

For me, the progression of wins started with just tracking my actual expenses. From there, it progressed to defining actual budget buckets, then to what those buckets should be (based on the last 12 months), then comparing that to my expected income per month. I then adjusted the allocations to align with the planned income. THEN I was able to start celebrating when my expenses were in line with my plan and/or I got to cash-in on “fun” budget allocations (e.g., a trip to Italy).

Take a moment to look back at what you’ve done in the past week. What are you proud of or excited about? Did you plan ahead for a night out (and stick to the plan)? Did you pack a lunch instead of buying? However big or small, don’t take for granted the daily achievements you’re already having. Lean on those as proof of what you can do!

The Power of Saving to Build Wealth

“A penny saved is a penny earned.” While this simple statement is accurate, it is even more powerful when you pair it with “it takes money to make money.” In essence, any money you save can be utilized to earn MORE money, whether it be through interest-paying accounts (e.g., savings accounts) or investing. At any rate, as you save money, it is able to grow itself via compound interest. In short, compound interest is your starting balance grows at a given rate, then it grows at that same rate on the new amount (detailed explanation here).

Quick example: So let’s say you invest $1,000 (your principal) and it earns 5 percent (interest rate or earnings) once a year (the compounding frequency). After the first year, you would have $1,050 – your original principal, plus 5 percent or $50. The second year, you would earn $52.50 ($1,050 year 2 principal * 0.05%).

As you continue to save and put your money to work making more money, you are on your way to building wealth! In the prior example, after 10 years, your initial $1,000 turns into $1,628. That’s $628 without having to lift a finger!

We are putting this to work with our child’s education savings. We budget to set aside $1,200/year to go into her UTMA account (invested in VTI). Using historical averages, we assume a 7% growth/year, after inflation, that leads to a total account balance of $44,855 ($22,800 principle + $22,055 interest). Feel free to experiment with your scenarios using Nerd Wallet’s free calculator.

Setting SMART Savings Goals

When it comes to starting your savings, it helps to have SMART goals (Specific, Measurable, Achievable, Relevant, and Time-bound). A thorough breakdown can be found here, but in short be very deliberate about why you’re saving and how you will define success. In the prior example, our goal is to have the $1,200 into our daughter’s account by her birthday each year.

Your goals should align with your overall savings blueprint. The blueprint will aggregate all of your savings goals together, in a coordinated hierarchy. Having this plan will take away the uncertainty of planning and remove general anxiety day-to-day. You will be able to make informed decisions, and as we all know…

Again, I turn to Nerd Wallet for a good how-to on how to get started making your own savings blueprint.

Creating a Savings Blueprint

As you map out your savings strategy, it’s crucial to know where to park your money for optimal growth. This brings us to the topic of prioritizing HYSAs as a smart choice for stashing away your savings.

HYSAs

Earlier, I referenced HYSAs. These are great places to store true savings funds. This is due to their key traits: 1) funds are readily accessible, 2) returns (interest) is guaranteed, and 3) the interest rate is higher than standard savings or checking accounts. Typically, the highest interest HYSAs are also offered by online institutions that are able to offer the higher rates due to not having physical locations they need to pay for. Here’s a list of the top options as of Sept ‘23.

For an example of the impact of standard savings vs. HYSA, traditional savings accounts earn up to 0.35% on the money in your account. Compared to 4.5% from SoFi, the difference on an initial deposit of $1,000 over 5 years is $17 ($1,002 for regular savings vs. $1,019 HYSA). While it’s only $17, that’s still nearly 9x the return on the same starting principle!

As Mr. Money Mustache eloquently highlighted, each dollar you have saved/invested is a tiny little employee working to make you more money. Be sure to “hire” as many of these little employees as you can (save your money) and then put them to work in an environment with the highest safe return possible (HYSA)!