Beginner’s Guide to Saving and Living on a Budget

If you are like most Americans, you probably are living paycheck to paycheck and have little or no savings. You may even spend more than you earn by running up credit card debt to cover the difference. When you are struggling to make ends meet each month, the last thing you are thinking about is opening a savings account. But that is exactly what you should be considering.

Experience has shown that establishing a savings account to handle life’s unexpected events, such as a job loss, decrease in income, or unplanned medical expenses, can alleviate much of the financial stress when or if these circumstances occur. A savings account is also a proven way to help you attain your financial goals. Whether it’s a new car, travel, or retirement, having a savings account is a smart and reliable means to making your financial dreams a reality.

Experts agree that as a minimum, you should have a savings account which equals three to six months of your salary. This is strictly for emergencies. You need to have additional savings for much-wanted items such as a trip to Europe or a new boat. Whatever your financial goals, a savings account can bring them within reach.

If you are new to the savings world, don’t worry. You are not alone. It may seem overwhelming at first, but with planning, patience, and determination, you can become a successful saver. The hardest part is getting started.

Here are some simple suggestions to help you on your way. First, open a savings account. This can be at your bank or credit union or any other reputable financial institution. Every month when you pay your bills, write a check to yourself and then deposit it into your savings account. You can also have your employer deduct a certain amount from your paycheck and have it direct-deposited into your savings account. Many people find it easier to save when it is done automatically.

Read about the Biggest Money Wasters and More Ways To Save by clicking on the links.

Remember that your savings can quickly grow. Even a small amount of interest adds to your total savings and when it’s compounded, your balance grows even faster. The important thing is to start!

It’s almost impossible to become a responsible saver without having a budget. Budgeting and saving go hand-in-hand to help you gain control of your financial situation and keep you on a steady course.

Budgeting isn’t easy. It requires time, commitment, and a willingness to look honestly at your total financial picture. You need to know where your money is going every month, down to the smallest expenditure. Once you have a clear picture of your financial responsibilities, along with your spending habits, you can better assess where changes need to be made and how you can start implementing them.

When you are just starting to plan your budget, take a moment and write down what is important to you. This can be anything from “financial security” to “buying a home”. Everyone’s list will be different. Then list your values in terms of priority. Also write down your goals. These can be short term and long term. What would you like to accomplish financially over the next six months? Next two years? The point is to have a plan.

Figure out your monthly net income. This is the amount you actually take home, not your gross pay. Include all sources.

Next you need to determine your monthly expenses. The best way to do this is to make a record of every monetary transaction you make. Do this for one entire month and then go over it. Get a small notebook and write down each purchase, ATM withdrawal, everything. Save your receipts. Having the receipts shows you not only what amount you spent, but also what you purchased. To be successful, you need to know exactly what you are spending and what you are spending it on.

Fixed expenses are usually easy to calculate. They would be your rent/mortgage, auto loan payment, and any other type of loan payment. Other monthly expenditures can vary, such as food, gasoline, and entertainment. Remember to include utility and cell phone bills, insurance, credit card bills, etc.

Now you’re ready to plan an actual budget. You might want to think of it as a spending plan. Writing down all of your expenses and balancing them against your income is a sure way of being aware of how much money you have, where it is going, and if there is any surplus. (many times there isn’t) You may even have more expenses than income, a situation which is all too frequent in today’s economy.

But there is hope. By keeping a record of how much you spend and what you spend it on, you will become aware of your spending habits. Knowing your habits will help you make positive changes that will make your budget more realistic and do-able. A budget only works when it is practical and created sensibly. Allowing $100 a month for food when you actually spend $250 doesn’t work for anyone. It may look good on paper, but you have to be honest with yourself when structuring your expenses.

Remember that there is a difference between “needs” and “wants”. Housing, food, and fuel expenses need to take priority when planning your budget. Money spent on entertainment, such as eating out or going to the movies, should be considered “wants” and placed lower on your budgetary scale.

For suggestions on Eating Healthy On A Budget and a Guide To Tips, check out these links.

When money is tight, it’s easy to use credit cards to purchase items that you think you need. But credit card debt can quickly get out of control. It can wreak havoc on your budget and undo all the positive financial steps you are trying to take. Be very careful when using credit cards. A good idea is to use the “24 hour” rule. When you are considering making a purchase, give yourself a day to think about it. Most times you will discover that you really don’t need what you thought you did.

Your budget isn’t written in stone. Go over it regularly and see how it is working. Is your financial situation improving? Are your spending habits changing in a positive way? If you need to make adjustments, then do it. A budget will only work if you can follow it and see progress.

If you have never saved or lived on a budget, it can seem like an unbelievably hard process. But the small steps you begin taking now can deliver big rewards over time. You deserve financial security. By learning to save and budget your hard-earned money, you can be well on your way to achieving that goal.