If saving money were easy, everyone would be doing it (and you wouldn’t be reading about how to do it). The truth is, saving money can be difficult ⎯ downright hard if you don’t go about it the right way.
The only realistic way to save money is by creating a budget. Now, don’t freak out; we said the “B” word, but have faith—if you are diligent, you will be well on your way to getting that nagging voice out of your head: “Save Money! Save Money!”
1. Track Your Income and Spending for a Month
Don’t worry about what you’ve done in the past—today is “Day One”. For one month, track every transaction. Carry a notebook and save your receipts. This is much easier with online banking ⎯ if you miss anything, log on and look back at what you missed. If you have several different banks, use an account consolidation tool. Mint.com has an excellent application for this. Be as detailed as possible with your entries. A $95 trip to Wal-Mart might include food, clothing, entertainment, and medical expenses.
2. Document Income and Necessary Expenses
Now that you have a good idea where your money is going, it’s time to prioritize. First, write down your net monthly income (assuming it’s a fixed amount; if not, a conservative average is best). Net income is the amount after taxes. Next, list all necessary yearly expenses (car registration, medical check-ups, insurance premiums, etc.) Divide each amount by the number of months between payments, and add this quantity to your monthly expenses. Once you’ve tracked everything, subtract the monthly total from your net income.
3. Be Willing to Adjust
Chances are over the course of your “self-research”, you’re going to find some unexpected big spending. Dining out, snacks, entertainment, shoes… there are plenty of ways to spend frivolously. Trim the fat in these categories ⎯ if you’re serious about saving, you’ll cut back in the non-necessities. Be realistic though… if you like to eat out, chances are you won’t be able to go completely cold turkey, so try cutting it in half. The ultimate goal is to cut your expenses down so you are living below your income level.
4. Be Disciplined, but Don’t Beat Yourself Up
There’s no point in creating a budget if you won’t live by it—So DO IT! If you use all your “dining out” funds in the first week, JUST SAY NO! However, mistakes happen… so don’t be too hard on yourself. The whole point of a budget is to help make your priorities more realistic and manageable. And it isn’t set in stone either… if you find your plan isn’t working, adjust accordingly. No need to set yourself up to fail.
Have you created a budget? How did you do it? How have you overcome the feeling of budget failure?