Everyone wants to stretch their dollar and get the most out of what they earn, but figuring out how to accomplish this can be difficult if you are not sure where to start. If you never balanced a budget, how do you go about learning how to save money in a realistic way that allows you to address your needs while reaching your financial goals? This is a predicament most Americans frequently face. However, saving money is not as difficult as you might think.
Here are some simple steps you should consider following, which can help you on your path toward developing a savings plan that will create a brighter financial future:
- Create goals: Saving money is a great idea, but setting your sights on something specific will give you the motivation to really follow through with a solid savings plan. Start thinking about what you want to save for and figure out how long it might take for you to save enough money for it. Do you want to save for a vacation and retirement? You can have more than one, and a mixture of both short-term and long-term goals. Examples of goals you might want to save for include emergency funds, a down payment for a car, your child’s education, retirement, or a down payment on a home.
- Remember to prioritize: After you set your goals, it is important to prioritize them. For example, saving for a vacation should not be more important than saving for your future retirement. If you know that you will be in need of a new car in the near future, that goal will likely have to take priority.
- Record your expenses: Once you figure out your goals and prioritize them appropriately, you can get to the actual process of saving. Figure out how much you spend and keep track of your expenses, no matter how big or small. The fact is that even little expenses like coffee or a snack will add up and become a much bigger expense. After collecting all of your data, organize the numbers by categories, and total each amount. Gas, groceries, mortgage, and entertainment are just a few categories you might create. An easy way to record these expenses is to use your credit card and bank statements.
- Make a budget: Getting an idea of your expenses is crucial for this next step. After you calculate an average of what you spend per month, you can organize these expenses into a budget. The budget you create should outline how they measure up to your income, allowing you to plan your spending and prevent excessive spending. In addition to your monthly expenses, remember to factor in regular expenses that do not occur monthly, such as dentist appointments or car maintenance.
- Plan on saving money: You made a budget, so now you have to create a savings category. Try to commit yourself to putting away 10% to 15% of your income into savings, though the exact amount should depend on your income and expenses. If you find that your expenses are too high to save much, you will have to reevaluate them and examine what needs to be cut back or eliminated. Is everything in your budget necessary? Try to identify any non-essentials that you can spend less on, such as dining out. Savings are not just some pie-in-the-sky dream. You should consider it as real an expense as anything else in your budget to help reinforce good habits.
- Consider making savings automatic: Many, if not all, banks offer automated transfers between checking and savings accounts, allowing you to choose when, how much, and where to transfer money to. This is a great tool that allows individuals to save money without thinking about it, lessening the temptation to spend the money that is destined for your savings account.
- Watch it grow: Just because you created a budget and a savings plan does not mean it will not need any tweaking to make it perfect. Examine your monthly progress, identify problems, and develop solutions to fix them. This will help you stick to your plan and even inspire you to save more.
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