Write Down Everything– Whether it’s a $1 soft drink or a $100 fancy dinner out, it’s important to keep a record of every dollar you spend. Those small purchases can really add up without you realizing it. Once you’re keeping a record, you may realize that your latte addiction is costing you WAY more than you thought it was. Ideally, at the end of the month, you can account for every cent you spent. Keep purchases divided into categories such as groceries, home expenses, and gas to help keep you organized.
Make a Budget– Once you’ve figured out what you actually spend in a month, determine a budget that realistically works for your household and spending habits. If you know that you will eat out once a week, then work that cost into your budget. Not sure how much is appropriate to spend? Consider the 50/20/30 rule as a guideline. Spend 50% of your income on essentials: rent/mortgage, food, transportation costs, and utilities are items you have to spend on no matter your lifestyle. Save 20% of your income. This includes savings/retirement accounts, paying off debts, and emergency funds. The final 30% of your income should be for personal expenses aka: wants. They are unnecessary to meet any basic needs and vary greatly from person to person. These include things such as your gym membership, cable television, and entertainment. Only you can decide which expenses are essential and which are optional. The less you can spend in this category, the more you will be able to save.
Choose Something to Save For– Whether it’s retirement, an emergency fund, or just your next vacation, having a specific goal in mind when it comes to saving money can make it easier to put a chunk of your paycheck aside every month. Have short-term and long-term goals so you can reap the benefits of your efforts more regularly. Short term savings goals are things you’d save up for 1-3 years and include things like vacations, down payment on a car, and an emergency fund. Long term savings goals include larger purchases and include things such as retirement, college funds for your children, and a home down payment.
Pick the Right Tools– For short term goals, consider using accounts that allow easy access and liquidation of your funds including money market accounts, traditional savings accounts, and short-term share certificates. For long term goals, retirement IRAs, stocks, and mutual funds may be a better option. Stocks and mutual funds are not federally insured and come with more risk, but also a higher return. Consider your options and choose what works best for you and your specific situation.