Start Saving Now
Put Yourself First
Start Saving Now
Many people are content if their expenses equal their income. In the long-run, though, it will be difficult to save and invest unless your disposable income exceeds your expenses. Budgeting is, therefore, crucial to success. It is like hiking: your goal to reach the top of the mountain seems almost impossible when you start. Your continual efforts along the trail do not immediately result in the beautiful view you were expecting. Likewise, with finances, many people become frustrated if they must delay satisfaction (purchasing the things they feel they need or want) and their budget efforts may feel ineffective. However, a little bit of patience and savings now can pay dividends in the future with proper Financial Planning.
There are several points you ought to consider in order to make certain your budget is effective. One must first note that budgeting can be simple or complex based on your income and lifestyle. You can make a simple chart in order to get an idea of what your budgeting looks like. In this process, you would start by recording all your expenses. You should first list living expenses such as mortgage or rent, utilities, taxes, and services such as childcare. Then list necessities such as food, clothing, and medical expenses. Remember to include insurance costs and entertainment such as a night at the movies. When working with clients, we use sophisticated software to analyze spending by categories. Analyzing this data enables us to determine where the money is going more accurately.
Now add one more line and label it "My investments and savings” or the like. If you treat investments and savings as an expense that needs to be made on a weekly or monthly basis, you will be more likely to set the money aside for yourself. Once you've calculated the dollar amount you spend on each item, convert that to a percentage. For example, suppose an individual earns $6,500 per month and has a mortgage payment of $2,500 per month. Simply divide $2,500 by $6,500 to determine that the expense is 38.5% of income for that one item. By performing this calculation, you will identify the relationship of each expense to your total income. Then the process becomes a matter of reducing percentages whenever practical. The idea is that a number of expenses can be trimmed a small percentage at a time. Finally, categorize expenses as either fixed or variable. You have discretion over the latter but not the former. Generally, it is the variable expenses that erode funds from your savings and investments.
Take your list of expenses and rank them as important, moderately important, or unimportant. Begin by eliminating the unimportant items. This in itself may be enough to begin a modest investment and savings program. If it isn't, eliminate some of the moderately important expenditures; then pay yourself first. Here's the key: do not just eliminate the amount, but rather, write out a check to a special account and start saving. Where the money goes depends on how much you have. If you begin with two hundred dollars, you might use a savings account or money market fund. If you are retirement-minded, and you qualify, use an Individual Retirement Account (IRA) until you've contributed the maximum annual contribution.
It is often difficult for any two people to agree on which expenditures are more important than others. It is natural for couples to disagree on budget choices, especially in two paycheck families. It is primarily a difference in priorities that cause couples to disagree. Negotiation and compromise generally help couples sort out their most appropriate and important expenses.
Putting into practice these helpful tips can increase your chances of sticking with your budget. After all the effort you put into this, the payoff of that beautiful view is sure to be satisfying. One method of budgeting that can improve your odds of success is the Envelope System. Click here for more information.
