It is common to worry about paying the bills every month and if you are struggling to pay the bills, how would you be able to save? How do you save for your retirement or a vacation or that new flat screen TV? I want 2010 to be the year you really put down some goals for yourself financially to make the changes you need. I may not be the most eloquent writer, but I would like to share a few steps I have used in paying myself first. These steps are not rocket science, but they will make you aware of your spending habits so that you may develop an achievable savings plan. Take a look and seize the opportunity to make positive changes in your finances this new year.
Budget Savings FIRST!
The beginning of a new year is the perfect time to create a new budget. A budget allows you to understand where the money goes and will enable you identify areas where you can free up cash for important savings goals, such as college and retirement. Consider your budget to be your blueprint for where your money goes each month. Stick with your blueprint and you will have shelter when a storm comes. The foundation of any good budget starts with savings. Once you have established that foundation of savings you can build the rest of your expenses.
There is no better time than the present. A budget can be as simple as your expenses and income written down and stuck to the refrigerator, or as detailed as a spreadsheet in a money software program. The key is to commit it and commit to it.
To keep using our building metaphor, your first project in building your shelter is to identify income or the money that comes in the door. Once you establish what you have to work with you can set your budget so you don’t spend more than what is coming in. The next important aspect to your budget is expenses.
It makes absolutely no sense to create a budget if you don’t know where your money is going. Take a month or two and track your expenses. Save your receipts and record all your expenses into a journal. If you are technology savvy, it might be a better idea to invest in software. Mint.com is an online personal finance system that will automatically track and categorize your expenditures. Identify a tool you are comfortable with and stick with it to make sure you know where your money is really spent. A realistic budget is much easier to follow than one that has no flexibility.
Spending Less equals More Savings
Time to analyze your expenses. Now you know where your money goes and it might seem like there is no wiggle room. But without paying yourself first there is no hope for savings unless you can foresee a winning lottery ticket in your future.
The hard part is looking at your discretionary income, the money that is not for food, shelter, transportation or other essential items and finding alternatives. Let’s say you eat out for lunch three times a week at $7 a lunch. If you could pack lunch each day at $4 a lunch, you are saving $9 per week or $36 per month or $432 per year. Poor Starbucks gets a bad rap in these articles, but if you are spending $4 – 5 on a cappuccino everyday, try bringing a thermos from home. It could save you up to $20 per week or $80 per month or $960 a per year. That is money that could be working for you and earning interest!
Ok, now you have reduced your discretionary income down and you have some money not being spent, it makes you feel good, you are on the right track. Let’s take another hard look at premium purchases. Reduce your grocery bills by clipping coupons. You can make a game with your family out of who can save the most money using coupons in the Sunday paper or searching online coupons of things you and your family already use. Bring your own shopping bags, some retailers are giving discounts to using recycled bags, not to mention you are making an environmental impact as well. Shop for store brand items, name brands typically cost more and can add substantially to the total cost of your grocery bill. Look for stock-up deals or wholesale clubs to save additional money.
Public transportation, better Annual Percentage Rates on credit cards, turning off lights, setting thermostats higher/lower are all ways of really reducing your expenses. myMoneyPower articles have lots of ways to help your save additional dollars as well. Take the time and figure out ways to save!
Your Goal is More Savings
So it is January of 2010, you have a basic shelter and your blueprint budget is working, however, you have started thinking about your plans for the future, whether they are for retirement, your children’s education or that dream vacation. Once you start putting your savings first you may even move that item over to the essentials list, you don’t even have to call it savings. Think bigger, then you re-visit your budget as time goes on and salaries and living arrangements change, you might be able to reduce expenses again. Thus allowing more savings for a bigger and better dream.
Let me know if you have any tips for reducing expenses, I am always trying new things…….but start with a budget and see how far you can go!