Saving money is one of the smartest financial moves you can ever make. And you're smarter if you start saving up early because unforeseen circumstances are always hiding around the corners watching you spending money on foreseen circumstances.
Having emergency funds can help you to eliminate debt and reduce stress. So, saving money is indeed a smart financial move. In the United States (U.S.), studies show that 60% of Americans face unexpected expenses yearly that savings could cover.
However, it's important to know that the best way to save money is getting yourself involved in smart budgeting. In other words, having plans is the best and simple ways to save money for the future. These guides can help you create a smart budget that'll enhance your savings.
Build a Smart Budget
The hardest reality to admit about savings is that it's difficult to get started. You may receive a huge sum of money but before the money comes, there are awaiting expenses whining up to swallow the funds. This is why smart budgeting is needed.
To me, I describe budgets as the opposite of expenses. For sure the expenses will keep coming. This should be main reason you should continue creating budgets alongside your expenses so that when expected funds arrive, both the budget and expenses will have shares in it.
This guide to budgeting and saving money will help you to create a simple, and realistic strategy to save up money for future in no time. Let's dive in without wasting much time.
How to Create a Smart Budget for Savings
To consistently reducing your expense which will give you more room to save money, you also need to consistently creating a monthly smart budget to plan your spendings. But before you do that, you need to track all your expenses first so that you can know where and how to adjust your spendings.
1. Track All Your Expenses
To start a smart budgeting, you need to first track and know every areas and things you spend money on. You need to know how much you spend per month from your income. Ask yourself, did I have any savings from my income this month or I ran into debts?
Once you're able to answer this question, then you can easily figure out where to adjust. Next, organize your expenses into categories from the "most important" to the "less important". You can make use of your bank statement to make sure that all expenses are added to the list.
Most important expenses are non-negotiable expenses required for basic living and financial security. They consume about 50% of your income (per the 50/30/20 rule). Moderately important expenses enhance quality of life but aren’t critical for survival.
They account for about 30% of income. Less important expenses are nice-to-have expenses that can be cut if needed. Savings and debt repayment often take priority over these. These expenses take the remaining 20% of your income.
Example of most important expenses are payment of house rent or mortgage, utilities such as electricity, water, or internet bills, food, transportation, and insurance such as health. Example of moderately important expenses are expenses on personal care such as haircuts.
Once you've successfully organized all these expenses, the next thing to do is to fit in your saving budgets into the monthly expenses. The question you should be asking right now is "how do I fit savings into my monthly expenses?"
2. Fit Savings Into Your Expenses
To fit in savings into your expenses means you have to eliminate certain expenses and replace them with savings. In this sense, less important expenses such as luxury purchases, subscriptions, impulse buying, and excessive entertainment, should be reduce or eliminate completely so that savings can fit into their positions in your monthly expenses.
Meanwhile, that's not all, you also need to plan on eventual increase of your savings amount as time goes on. By the time you realize it, you will never lack savings to tackle emergency that requires funds. According to many financial experts, they say 20% of your income should be allocated to savings.
