It appears our “leaders” in Washington have cobbled some sort of budget deal together, another last-minute fiasco. It was bad enough again this time for the rating agency, Fitch, to put our country’s credit rating under negative review.
Don’t let this happen to you! Unfortunately too many of us have not made saving money a high priority. If that describes you, you are not alone. Before you sit down to pay bills this month, take some time to put together a spending and savings plan. You’ll be surprised how focus on your budget can result in significant savings.
Most Financial Advisors pay most of their attention to the returns on your investments. However equally important, if not more so, is how much you’re setting aside for the future.
Here are 5 ideas to help you get your financial house in order, and begin a more robust savings plan:
1. Know Your Numbers
It is critical to know exactly what your income and expenses are. As we all likely know, you can’t improve something unless you measure or monitor it. First, start with your income. Add up all sources of our monthly income.
Next focus on your expenses. Some are relatively fixed, such as mortgage, rent, car payments, student loans, credit card payments, and insurance. Then add the more variable expenses like groceries, medical expenses, and utilities.
Now it’s the moment of truth for most people. What is left over? This could be called miscellaneous expenses, the number generally surprises, and an area money literally disappears before our very eyes. It’s hard to change habits, but write down ALL your daily expenses for a while. You’ll quickly see opportunities to spend less and save more. Click here for a Cash Flow Questionnaire on our website to help you in the process.
Simple but effective!
2. Determine What Causes You The Most Stress Financially
While you’re working on you numbers, spend a few minutes with a blank sheet of paper and write down everything on your mind that worries you from a financial perspective. Most find this is 3 – 5 items, and once identified, you’ve made serious progress in resolving them. Then determine what is most stressful to the least stressful on the list.
As you work through this you can look for ways to address your financial concerns. Don’t lose hope no matter what your situation looks like. Once you take control, you have the power to change things. Most don’t take these few simple steps, and it causes enormous stress…very unhealthy.
3. Goal Setting
What is your vision? If you were to dream 5 years out, what would you like your situation to look like? While these goals may be somewhat different than financial goals, they are generally related.
Make a list of things you want to save money for. It could be a house, a bigger house, a car, a vacation, the list is endless. Put together realistic time frames when you want to achieve your goals.
Never forget an emergency fund! As you put your budget together, always plan for at least a 3-6 month earnings cushion in a savings fund.
4. Create A Budget
Every month you will need to set aside a certain amount of money for each financial goal. The amount depends on time frame, spending, and income. This requires some organization and paying attention to spending habits.
5. Pay Yourself First
The easier you make savings, the easier it is to stick to it. There are many ways to mechanize savings. You may be able to have the amount deducted from your income, or have automatic amounts drafted to your bank savings account. The more automatic the better.
The accepted benchmark for most people is to live off 90% of your income, and save 10%.
Wanting to save more is always a noble goal. But getting started is usually the most difficult part. There is a Chinese proverb that says “The best time to plant a tree was 20 years ago; the second best time is today.” Now is the perfect time to make saving a priority. You’ll be surprised how much better you feel!
Call us at Financial Freedom Planners…we can help!