How to Save
Write Down What You Want
If you want to turn dreams and goals into reality, start by writing down
everything that you want to save for. Seeing what you want on paper makes it
real and let's you decide which goals take top priority.
Don't be overwhelmed by the large amounts of money that
may be involved. Remember that once you start saving, your money will also begin
growing through interest payments or price appreciation, helping speed you on
your way to getting what you want. To wind up with a million dollars at
retirement, for example, it isn't necessary to save a million dollars. Just make
up your mind to invest carefully and regularly, and watch your money grow.
Begin With a Budget
Figuring out a budget is a simple, step-by-step process. As you work out your
budget, you will find some surprises about where your money is going, and see
where to cut some expenses that can result in significant savings over time.
That frees up money to invest and save for what you really want.
Step One - Figure Out Your Cash Flow
Begin by tracking how much comes in every month. That can often be as easy as
adding up your pay stubs, but don't forget to also include such items as
dividend and interest income, child support, and any other money that you may
receive during the year.
Then comes the more difficult task of tracking how much
goes out. Include all fixed expenses, such as your rent, car payment and
average utility bills. Then figure out what you will be paying on credit cards
and other bills over the next year. Next, add in big expenses that you see
coming up, such as car repairs or day care costs. Then you need to see how much
you are spending out-of-pocket each month. The best way to do this is to write
down every penny you spend for one or two months.
Add up the income and then add up the expenses. Hope
that they are equal, or that income is higher. If your expenses are exceeding
your income, don't despair. You're not alone. But get ready to do some cutting.
Step Two - Adjust What You Spend
Now it's time to take a hard look at the numbers and to trim areas of over
expenditure and free up some money for investing and big ticket purchases. As a
general guideline, some experts suggest that you spend about 65% of your
take-home pay on housing, utilities and food; about 20% for repairs, recreation
and vacations, clothing, gifts; about 10% for insurance premiums and property
taxes, if you're a homeowner; and at least 5% for savings. Two-income couples
should save a minimum of 5% each and higher income couples should be save 10%
One trouble area that often comes to light during the
budgeting process is high credit card debt. Don't get nervous if 10% or less of
your take-home pay is directed that way, but if it's much more than that, it may
be time to focus on paying them down for a while.
Step Three - Analyze and Adjust Again
Make a draft budget plan and try living on it for a couple of months. You may
find that you've been impossibly hard on yourself, or you may find that by
cutting out unnecessary expenses you actually have more to put away for a rainy
day than you expected. Make final adjustments at this time, so that your budget
becomes both something that you can live with now and something that will get
you to your long-term goals.
Automatic Investing Helps
Determining to stick to your budget isn't always the easiest thing to do.
One way to make sure that you stick to your plan is to have your bank
automatically withdraw the amount you plan to save from your checking account
and transfer it to the savings or investment account on a monthly basis.
Another way to keep your self committed to your goals is to remind yourself how
happy you will be once your dreams and goals are achieved.