Budgeting Advice for Individuals

When it comes to saving money and having fiscal discipline most have at least a few areas where they fall short of their goals.

 

The big question is how to get to where you want to be from where you are right now. If you are like 65 percent of U.S. residents, you have little or nothing saved for an emergency or retirement.

A recent report by CNBC stated that most manage to save approximately 16 percent of their take-home pay, and only six percent managed to save 25 percent of their take-home pay. So, how can you get to that six percent? Experts state there are specific steps you can take to work toward that goal. Some of those steps include setting and maintaining a budget, knowing how much you can realistically put away, creating an emergency savings fund, and how to save and budget even if you are a college student. Last, explore your options with a money club and see if it is right for you.

Creating a Budget

Talk to any finance expert and one of the first things mentioned will be the creation of a budget. This is because you have to be able to track where your money is going before you can get back on track. Where most people derail in making a budget is allocating an unrealistic amount each week for expenses. The only way a budget will work long-term is for it to be sustainable. That means making sure you have a little spending money for splurges. To create a budget that will work for you a baseline has to be formed. Purchase a small spiral bound notebook, one you can keep in your back pocket, glovebox or purse. Then, whenever you spend money you write down that amount and what it was for. At the end of a week you will see how you are spending your money. It might come as a shock to you when you add up all of the coffees or drive thru meals and see that it amounts to a grocery or lighting bill.

Next, create list of your known bills, such as rent, loans and credit cards. These are your expenses. Guesstimate what you will spend on groceries for the month and put that down. In a second column put your income. Subtract the expenses from the income and hopefully there is a little left. Using the 50/30/20 rule is what you want to aim for. Spend no more than 50 percent on rent or a mortgage, 30 percent on known or fixed bills as well as splurge money, and 20 percent on savings and investing for retirement. Creating a budget that is workable is doable. A plan, however, is only as good as your commitment to following it.

How Much Money Should You Put Away?

Since a majority of Americans is having difficulty setting aside money for their savings, you may be tempted to put it off as well. However, not saving for the future or for emergency situations can be disastrous. For most people in the U.S., it is not that they do not have the money to set back, but rather they are misspending their discretionary funds in places that will not give them a very good return. Have you heard this argument about savings: “I can only afford to put back $10 a week and that is not enough to amount to anything”? However, reconsider this assumption. Putting away just $10 a week is $40 a month or $480 a year. Most financial experts state you should save at least $1,000 in an emergency fund at the bare minimum, with the goal of having at least three to six months worth of savings in case you lose your job. If you increased your savings to just $25 a week, $100 a month, you would easily have your emergency fund within the year. There are formulas you can utilize that will give you the exact percentage you should be stashing back based on your income, the income you want to retire with, and how old you are. Age is on your side when you are in your 20s, 30s and early 40s because even small amounts invested will pay off handsomely if you leave it to accumulate.

Best Types of Savings Accounts

Most banks offer savings accounts with various packages. There are student savings accounts, online savings accounts, money market savings and certificate of deposits. Since it is just you and not a partner or spouse involved, go for the basic package, which is the traditional savings account, because in the end the goal is to have a savings account that gives you the best interest rate and liquidity. Shop around with various banks and see what their interest rates are for their basic savings account. Find out the following when evaluating a savings account:

  • What is the monthly interest rate?
  • Is there a fee if a certain balance is not maintained?
  • Is there a way to keep the savings account hidden from view while using online banking?
  • Does the account offer automatic transfers from your checking account?

Creating an Emergency Savings Fund

Your dishwasher goes out two days before a big holiday. Your car is in a fender-bender and you have to meet your deductible. Your A/C goes out in the hottest part of the summer. All of these scenarios are likely and all of them can leave you with serious debt if you do not already have an emergency fund set aside. Financial experts state you should save at least three months’ worth of your monthly salary in case of emergencies, or you lose your job. If you are a freelancer, or your work is not steady, then experts suggest you save up to six months’ worth of money. While can seem like a lot of money, starting small at first is crucial. Some easy ways to begin saving is to keep a change jar. Each evening throw your loose change in the jar. At the end of each month, cash it in and deposit the money into a savings account. You will be amazed at how much you will have set back in just a month’s time. Find an easy method that works for you and stick with it. Saving is a numbers game and you have to continue it for the long haul.

 

Saving and Budgeting Tips for New College Grads

If you are just starting out in a new place and at a new job, chances are you have brought some of your college items with you. Some furniture, appliances and linens can continue to be used and can save you from the added expense of having to fully furnish a new apartment. Consider rooming with someone your first year, as this will save you a lot of money and give you someone who may be more knowledgeable about the area you are in. This may be the first time you are living completely on your own without any real financial support from your parents. If so, there are a few things you need to keep in mind.

  • Create a budget and adjust it as needed
  • Spend as if you do not have a mom and dad safety net
  • Make sure most of your furniture is multifunctional
  • Use public transport if it is safe
  • Cook most of your own meals

Money Clubs

Move over book clubs, money clubs are taking over the social scene. Just like their book club counterparts, money clubs are groups who discuss money matters. The issues discussed can include investing, budgeting and saving money for children’s college funds. The appeal of such clubs is there is a level of accountability with spending and investing and there is a wealth of information and education for those who may have not had much education about financial matters in school or from home. It is very easy to start one, and some of them take place in a virtual forum.

 

 

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