Budget to Save
Set Financial Goals
Most people who have built wealth didn't do so overnight. They got wealthy by setting goals and striving to reach them. Set goals, such as: (1) save and invest enough in four years to have $10,000 towards a down payment on a house, and (2) pay off $3,000 credit card debt within two years, and (3) invest enough to have $25,000 in 15 years towards children's college education, and (4) have $5,000 a month to live on when you retire in 30 years.
A personal wealth-creation strategy is based on specific goals. In preparing your goals:
- Establish time frames.
- Devise a plan.
- Be flexible; goals can change.
Develop a Budget and Live by It
When it comes to finances, people generally fall into the following groups. Where do you fit in?
Planners control their financial affairs. They budget to save.
Strugglers have trouble keeping their heads above rough financial waters. They find it difficult to budget to save.
Deniers refuse to see that they're in financial trouble. So they don't see a need to budget to save.
Impulsives seek immediate gratification. They spend today and let tomorrow take care of itself. They couldn't care less about budgeting to save.
Knowing what kind of financial manager you are will help determine what changes to make. To maximize your wealth-creating ability, you want to be a planner.
Example of a Planner:
Betty is a single parent with one child. "I have to budget in order to live on my modest income. I have a little notebook I use to track where every dime goes. Saving is very important to me. When my son was born, I started investing every month in a mutual fund for his college education. I am proud to say that I control my future. I provide for my son, and I've never bounced a check. You must have common sense regarding money!"
Example of a Struggler:
Lynne has a good job, makes good money and lives a pretty comfortable life, but her bankbook tells a different story. She has no savings or investments, and has no plans for retirement. Plus, she's got a lot of credit card debt, lives from paycheck to paycheck and doesn't budget.
You can choose to be like Lynne, or you can follow Betty's road to wealth creation by learning to budget and save.
A budget allows you to:
- Understand where your money goes.
- Ensure you don't spend more than you make.
- Find uses for your money that will increase your wealth.
To develop a budget, you need to:
- Calculate your monthly income.
- Track your daily expenses.
- Determine how much you spend on monthly bills.
Track Day-to-Day Spending
One day Lynne, the struggler, realized that to build savings she had to become more like Betty and plan her financial future. To start, Lynne analyzed her finances to see how much money she made and how she was spending it. She set a goal to save $165 a month to put toward her savings plan goals. First, she calculated her income. Then she added up her monthly bills.
She also carried a little notebook in her purse for jotting down her daily spending, whether by cash, check or credit card.
You can study your own spending habits by tracking daily expenses. Be sure to include items purchased with credit cards, as well as those purchased with cash or check.
Get a Handle on Income and Expenses
Lynne used the information from tracking her day-to-day expenses to develop a monthly budget. When Lynne reviewed her budget, she realized she was spending more than she earned. Lynne knew if she were ever going to save $165 a month, she had to cut her expenses, earn more money, or both. She worked overtime at her company, which increased her take-home pay. She bought fewer clothes, discontinued premium cable TV channels, carpooled to work to cut gas consumption and reduced her spending on eating out and entertainment. Tracking her expenses paid off. Lynne successfully developed a budget that enables her to save $165 each month.
Using Lynne as an example, track your income and expenses. Identify changes you can make to increase your income or decrease your expenses, and develop a new budget that includes more savings. Be sure to make reasonable budget changes that you can live with month to month.
To help you maintain the discipline to save:
- Save every month.
- Have savings automatically deducted from your paycheck or checking account.
- Base your budget on what's left.
Used with permission from the web site of The Federal Reserve Bank of Dallas
Copyright 2002. All rights reserved.
W e provide access (links) to some external websites for your convenience. The EAP is not responsible for the availability, accuracy, or content of those outside resources or sites, nor does it endorse them. This site is not an attempt to provide any counseling or other type of intervention.
For more information or to discuss financial concerns please contact Partners Employee Assistance Program at 1-866-724-4EAP.
In case of emergency, please call 911 or your local hospital emergency service.
This content was last modified on: 07/22/2008