For many of us, saving money is very difficult. The truth is that most people don’t keep careful track of how much they spend and thus, don’t do enough to find ways to save. If that describes you, here’s an eight-step program to help you find more savings in your household income.
Step 1: Create a budget. Don’t think of a budget as a way to scrimp, but as a log that keeps you aware of where your money is going and enables you to manage it better. The key is to keep it organized and in a format that you can return to again and again.
Make a single sheet for each month. Organize it into two sections, one for expenses and the other for income. Divide the expenses section into two parts: the ones you pay for out of the checking account and the ones you pay for at a cash register. Then create a line for every kind of recurring expense you have, form your mortgage or rent, to your utilities, phone, and cable, your memberships and subscriptions, life insurance, and payments for loans and credit cards.
For out-of-pocket expenses, make estimates in advance and create line items for lunches out, personal care like the hairdresser or beauty shop, gas and oil, prescriptions, clothing, and entertainment. In each part, do your best to include everything, but your budget is a living document that you can add to as you remember items.
Devote another column to the net income you expect to receive for the month from all sources. Then, subtract your total expenses from you income. If the result is negative, you’ve discovered a problem. Fixing it, either by spending less or earning more, will bring your spending in line with what you make.
Step 2: Track your spending. What you’ve created in the first step is a master budget. Now, you have to start tracking what you actually spend. That’s not too hard when making payments out of your checking account. The challenge is when you pay for things at a cash register, whether you use cash or a card.
Keep all your receipts and make a daily record of any expenses for which you don’t receive a receipt. Then, once a week, enter what you actually spent into your budget. Look for how your actual spending affects the balance between your expenses and total income for the rest of the month.
Step 3: Set a saving goal. As you make your master budget, you need to think about a goal for the extra savings you want to achieve. Enter that amount as a line item in your column of recurring monthly expenses.
Step 4: Make the savings automatic. The key to actually saving what you intend to save is to make the transfer from your paycheck automatically. It’s best to do one of three things: increase the amount that you contribute to a workplace savings plan by payroll deduction, authorized a deduction every month from your checking account, or write and deposit a check into your saving account as soon as you get paid.
Step 5: Cut down on discretionary spending: The places you’ll find savings are from things you can really do without. These range from snacks at vending machines to meals out, movies, shows and concerts, premium TV channels, expensive smart phone data plans, and even vacations. It can be difficult to say no to yourself, but with practice it gets easier, especially when you see your savings balances start to grow faster.
Step 6: Review your big-ticket finances ─ mortgage, car loans, or lease. You can find your biggest savings by carefully reviewing your biggest expenses. With mortgage rates near record lows, refinancing could save you hundreds of dollars a month. If you’re leasing a luxury vehicle, consider going down a notch or two when it expires, or buy a recent-year car ─ you’ll save thousands on the depreciation and could lower your monthly spending significantly.
Step 7: Avoid late payment penalties and overdraft fees. Pay all your bills on time so you avoid being charged costly late charges and fees, and keep your checkbook up to date to avoid overdraft charges.
Step 8: Buy only with cash. As much as possible, make your purchases with cash instead of using high-interest credit cards. The idea is to force yourself to postpone impulse purchases that increase your balance and interest charges.
It’s always better to err on the side of saving too much than too little. Gauging just how much you really need to save, however, is more a matter of art than science, as please call if you would like to discuss this in more detail. Copyright © Integrated Concepts 2012. Some articles in this newsletter were prepared by Integrated Concepts, a separate, nonaffiliated business entity. This newsletter intends to offer factual and up-to-date information on the subjects discussed, but should not be regarded as a complete analysis of these subjects. The appropriate professional advisers should be consulted before implementing any options presented. No party assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material.