Budgeting to Save Money
Forming a budget is difficult but it is one of the easiest ways to start saving money. Here is how budgeting to save money can help you take a closer look at your finances:
- Track Spending – The first thing you will have to do is to track spending. For one month keep a log of every penny spent to see exactly where your money is going. How much do you spend on necessities like rent/mortgage, utilities, travel, etc? Next, you need to find out how much your discretionary spending (fun money) is. The last thing you need to figure out is how much you are currently saving. (Check out this expense tracker spreadsheet.)
- Cut Spending – Once you figure out where your money is going, you can determine where you can make cuts. If you are going out three or four times a week, you might consider cutting down on one night a week. How much are you eating out? Cooking at home will save you money every month.
- How is your debt? – If you have a lot of debt, whether credit cards, student loans or other items, you need to develop a plan to pay it off. There are many ways to tackle credit card debt and refinance your loans.
- Prioritize your Savings – You’ve figured out your spending and cut where you could. You’ve also developed a plan to pay down your debt. Now it’s time to save. It is VITALLY important you prioritize your saving over everything else. You need to pay yourself first. Spend what’s left after saving, not the other way around. Make sure you are saving a little money every month into an emergency fund so you can limit the impact of a large, unplanned expense. When saving for retirement, if you take part in an employer-sponsored plan (like a 401(k)), make sure you contribute enough to maximize the employer match. You should set a goal of 20% of your income for retirement, but if that isn’t possible save as much as you can. If you can only do 5%, start with 5%. Once you have done that for a few months to a year, increase to 6%.
- Automate your Savings and Bill Pay – Have your bills set to pay automatically on their due date. This ensures you pay your bills and helps avoid a late payment, which could cost you fees and/or a bad remark on your credit score. Also, have any savings automated. If you save money into a retirement account separate from the one at work, set it to automatically contribute at the beginning of the month so you save before any other spending comes into play. Also, do this with your emergency savings. Have money automatically transferred from your checking account to your savings or money market account.
- Build extra income – A great way to juice your budget is to add some extra income. There are number of great ways to do this, including investing in stocks and bonds, participating in studies and reselling things on craigslist or Facebook marketplace.
As I said, saving money is very important. You save money for retirement. You save money for short-term goals, a down payment for a house, for instance. A budget is a great way to save for your future. With a budget, you can cut spending on things you don’t necessarily need and make saving money a priority. Again, spend what’s left after saving, not the other way around.