Friday, January 6, 2012

How to Start Saving - Time For the B Word

Yes, I know it's a painful word for many, but before you run for the exit or click on another site, please hear me out.

Budgeting. There I said it. Not so bad was it ? For those who have difficulty resisting temptation and therefore saving money, a budget may be just the thing to start them on the right path to becoming rich.

As mentioned in a previous post, you have to know where your money is going every month.If you haven't done the exercise yet, it's time to go back and reread my previous post "How to Increase Your Savings - Know Where Your Money is Going" . The first step to developing a budget is to know where your money is currently being spent.

Once you have an idea of where you are spending your money, add up all the categories and list them in order of importance. The ones at the top should be life's basic needs such as food, shelter (rent or mortgage payment, utilities, etc.- this does not include cable tv, cell phones etc.) and clothing. The basic needs are things we cannot survive without. We all have to eat. We all have to live somewhere (preferably).We all have to have basic clothing.

All other categories are what we call discretionary expenses. What this means is that we have a choice on how much we spend in these areas. We would still be able to survive without them.

Now, add up all your income for the month (take home pay) and subtract the totals from each category. Hopefully you are left with a positive number. If this number is negative you will need to cut your spending on some discretionary categories just to survive.

The goal of your budget is to have at least 10% of your total take home income left over after all categories have been subtracted out. Think of the categories that are least important to you and start reducing those categories first. Reduce until you have at least 10% of your income left over.

This left over amount will be the amount you will start saving each month. Set this amount aside at the beginning of each month and don't touch it. Keep it in a separate bank account without bank card access.

You will now be living on the rest of your income. You must follow the guideline amounts you have set up previously under each category. These will be your budgeted amounts that you can spend.

By sticking to your budgeted amounts for a few months, you will likely find it not too difficult to live with the changes. The longer you stick to the budget, the easier it will become. It is a spending habit that you are now learning. As in all habits, it takes time to develop, but once learned will become second nature over time.

Every time there is a change to your total take home income your budget should be adjusted. The guideline here is to always ensure that after category adjustments are made you still have at least the 10% left over for savings.

Your continuous and increasing savings amount will become your foundation for your future wealth. As in all things, a solid foundation will provide a strong future for whatever you have planned.

There, I'm finished with the B word and will never bring it up again. I promise. Well, unless someone requests more on it later that is.

As always I welcome your comments and suggestions for future topics.

1 comment:

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