May 17, 2017
There’s no denying how important it is to budget wisely so we can save money – no matter what tax bracket you fall into. But it doesn’t come naturally to everyone. As a branch manager, I try to work with my customers to help them make the most of their savings. Here are some tips that I’ve found the most helpful in that quest to fill up the proverbial piggy bank.
Pay Yourself First – Decide on a percentage of your pay to go to savings before you allocate your paycheck to anything else. If you can, set up an automatic transfer from your checking account to your savings.
Try for Ten – A good guideline for how much to save each month is 10%. Example: if you make $500 a week, you save $50. If you stick to this weekly plan, it’s easy to see when your savings will hit the point where you can purchase whatever you are saving for. For example, if you are trying to save $2,000 to use as a down payment on car and you put $50 a week in savings you know it will take you 40 weeks (10 months) to get there.
Consider the Costs – To build off the example of purchasing a new car, the savings of $2,000 dollars for the down payment is only the start of the costs associated with the vehicle. After making the down payment, you will still have to make the monthly auto loan payment (if you have one.) Additionally, you will have to pay for gas, insurance, repairs, registration fees, etc. It’s important to consider the associated costs when making a purchase – that will help you determine how much you need to save.
Review and Adjust – Even after establishing a monthly budget that you can live on, it’s inevitable that eventually something in that budget will change. Whether it’s for the better (raises, promotions, pay off a debt, etc) or for the worse (laid off, adding a new debt, etc.) Be prepared to adjust your budget as needed.
For better… If your income increases, resulting in additional monthly income available to you, consider putting that increase right into your savings – you already know you can live without it!
Or worse… In the case of decreased income, you’ll need to adjust your discretionary spending temporarily until a long term solution is found. If your debts and income change to a point where you find yourself taking from savings every month that is a sign that your budget is no longer working and should be adjusted.
Be Prepared – We all know we need to save for big purchases. But what about an emergency like an auto repair, house repair, medical issue or lost job? Without savings to use in these emergency situations, many people turn to credit cards and incur even more debt. It’s a good idea to divide your savings between your spending goals and an emergency fund. A great place to start is to work towards creating a “buffer zone” equivalent to 3 month’s salary. If you have a mortgage to pay, it’s a good idea to increase that buffer zone to closer to 6 month’s wages.
Know Your Numbers – Based on surveys, last year over 70% of people who use electronic banking checked their balances on their phones before making a large purchase. Of those 70%, half of them decided against making the purchase based on their balance. It’s important to always know your balance, and when budgeting, calculate what your balances look like at the end of the week, month, even the end of the year.
If you’re diligent about budgeting and saving, life’s little emergencies and expenses seem less daunting and you’ll be more confident in your ability to handle them. Questions? Give me a call!