Living without a savings account is tantamount to a trapeze artist flying without a safety net. But in our economy, many people wonder where they can find the money to save. Creating a budget is crucial to being in control of your finances because it is a simple way to monitor your expenses.
However, our 2011 Financial Literacy Survey showed that just over 2 in 5 U.S. adults have a budget and keep close track of expenses such as food, housing and entertainment. Over 128.4 million Americans do not. This continues a disconcerting trend that has emerged in the previous few years.
Contrary to what many think, a budget isn’t restrictive. It actually allows you to spend your hard-earned money the way you want to, often stretching it even farther. Most importantly, it puts you in control of your finances.
A well-designed spending plan considers all sources of income, living expenses, debt obligations and savings. Be sure to incorporate all three expense categories: fixed expenses (e.g., mortgage, auto loans and rent), variable expenses (e.g., credit cards, groceries, entertainment, clothes and gasoline) and periodic expenses (e.g., property taxes, home repair, and car maintenance). Whether it’s saving for retirement, education or a vacation, the old adage remains true: pay yourself first. You can’t spend money you don’t have, so set aside your allotted savings right off the top.
When constructing your budget, be realistic when looking for opportunities to save money. People are more successful when they cut back, as opposed to cutting out. Don’t be too strict, or you won’t stick with your plan. Know, however, that small changes over time can indeed add up. For instance, instead of eating lunch out every day, brown bag it two days per week. Take a look at your cable package and cell phone plan to determine if you have the right fit for your lifestyle. Evaluate the necessity of having a land phone. Savings opportunities are available in each spending category.
Most importantly, involve the entire family. A joint effort yields a greater result. And, make it fun. See who can save the most each month, and have a special prize for them. Agree upon a savings goal that everyone can work toward (summer vacation, new car, etc.). Celebrate each success along the way. Before you know it, saving will be as much fun as spending.
To get started on creating your budget, fill out the NFCC’s free budget worksheet.