How much you’re able to save, of course, is dictated by your level of spending. The game played between the two each month can be the source of much anxiety and grief.
Spending on the fly can be dangerous. It’s hard to see the big picture during an unplanned big night out or while in the grips of new car mania. Wouldn’t it be better to make level-headed decisions on how to spend your money beforehand?
An hour of financial planning can alleviate any future angst. It will also help you address your goal of financial independence more genuinely.
Schedule a Meeting
I recommend having a financial goal setting meeting. With yourself. Invite that special someone to the meeting too if appropriate. It’s much easier to achieve goals when two are working as a team rather than each apart.
Take this meeting seriously. You’ll be making important decisions that affect not only the rest of this year and next year but your financial future too.
Estimating net income is your first task. Be sure and include income from all sources. Once you’ve got an accurate estimate, it’s time to decide how much to save and how much to spend.
Most Important Money
Saving money is necessary and important. The money you save is the fuel for your investments, wealth-building, and financial dreams. That makes your savings your most important money, far more important than what you spend. Treat your most important money with respect, and when necessary, defend it at all costs!
Savings Percentage
One way to favor saving over spending is to pay yourself first. I recommend taking your savings percentage right off the top, as soon as your paycheck clears. That saving percentage could be 10, 15, 20, or even 50%-plus of your paycheck, depending on how serious you are about saving.
For shorter-term goals, funnel your savings into money markets, CDs, and high-interest savings accounts. For longer-term goals, devise a stock and securities investing plan within a 401(k)-type plan or Roth IRA.
Always look for ways to up your savings percentage. The next time you get a raise, don’t go out and just spend that extra money. Instead, keep your expenses fixed and raise your percentage. There are lots of other ways you can learn how to save more money and realize your financial dreams sooner.
Never lose sight of the bigger picture. That savings goes towards financial goals that are going to make incredible, positive differences in your life and the lives of the ones you love. When saved and invested properly, money can do that.
Emergency Reserve Fund
Maintaining your savings percentage and living on what’s left over can be hard. Sometimes, often through no fault of your own, your budget takes a hit. An unexpected expense pops up or your income is interrupted. You need a little wiggle room.
That’s what an emergency reserve fund is for. It isn’t for a doctor’s visit or a minor car repair. Those expenses should be budgeted. It’s for true unforeseen emergencies.
Your emergency reserve fund, as well as other short-term reserves, should not be put at risk. How safe is your money?
Living on What’s Leftover
Waste not want not. A penny saved is a penny earned. Save for a rainy day. Learn to appreciate the little things. These and other old-time sayings help us to live within our means, to not spend more than we make. Easier said than done.
Paying and Reconciling Bills
It helps to assign financial tasks to specific times so you’re never late with a payment or overdraw your bank account, which you never want to have happen. Plug those dates into your calendar. Other essential financial tasks need to be done as soon as possible.
If you have a significant other and you’re in this together, assign that potentially math-challenged partner of yours some financial tasks too so they become familiar with the goings on. Considering money troubles are often at the root of spousal conflict, getting more financially organized gives you one less thing to worry about.
Standardized Expense Categories
Divvying up your spending into expense categories will help you live on what’s left over. So will “standardizing” your periodic and maybe some variable expenses too. If you’re not standardizing your expense categories, you’re just pretending to live on a budget.
If you own a home, more than likely a mortgage is one of your bigger expenses. You can save thousands on interest charges by standardizing your mortgage payment and outperform those bi-weekly mortgage originators without the high fees.
Expense Tracking
Tracking expenses and standardizing expense categories doesn’t have to be arduous, and it doesn’t matter whether you use the latest smartphone app or the back of junk mail envelopes to do it. Just be sure to account for all the different ways you spend money: electronic transfers, debit and ATM transactions, cash expenditures, checks, credit card charges, and everything else.
Trimming Expenses
If you financed your car purchase, that’s probably another big expense. Do yourself a favor and avoid the new car smell. There are so many better things to spend your money on than steep depreciation and high-interest payments.
How much or how little insurance you pay for is a personal decision. Either way, insurance costs can collectively comprise a big part of your budget, and it makes sense to save money on insurance wherever you can. It’s a lot easier once you know more about premiums, deductibles, what’s required, and what’s optional.
For more on trimming expenses, check out my top 10 ways to reduce your expenses page.
Save More Money
These saving and spending strategies are not new, revolutionary, or the next best app or gimmick. They are mandatory, however, if you want to get your financial house in order and become financially independent.
There are only two ways to increase savings: Make more money and be thriftier. Try and work on both!