- How are you spending your money?
- Create financial goals
- What are your savings options?
- How to save money
How are you spending your money?
The first step in creating a budget is to determine how your money is being spent. Tracking your expenses will determine your daily spending habits. This will confirm if your money is being spent on luxuries rather than necessities.
When creating your financial goals it is important to be specific. While becoming rich may be your goal, it is important to make sure your goal can be tracked. A more specific goal would be to save $1,000 in 3 months. It is beneficial to have goals categorized as short-term, medium-term and long-term.
Short-term goals are goals that can be obtained quickly and do not require a large amount of money. Examples of short-term goals can include saving for a down payment on a car, buying a new wardrobe or going on a vacation.
Medium-term goals require more money than a short-term goal and are usually not for the immediate future. Examples of medium-term goals can include saving for a down payment on a home, a home improvement project or saving for the college education of a high school student.
Long-term goals are part of your savings plan. Examples of long-term goals can include saving for a young child’s college education, estate planning or saving for retirement.
What are your savings options?
There are multiple options
on how to save your money for the future. Each option has its own pros
and cons, depending on your overall financial goals.
Here are a few options available to you:
Savings account
While savings accounts offer low interest rates, they are easy to maintain
and have deposit insurance. With a savings account you simply deposit money
into the account and receive interest for the amount in the bank.
Checking account
Checking accounts are similar to a savings account since you will
earn interest on your balance. However unlike a savings account, you can
write checks to use your money. A checking account is FDIC insured.
Money market account
A money market account offers a floating interest rate based on the
changes in the market. This type of account usually pays a higher interest
rate than a savings or checking account. The money market account is FDIC
insured.
CDs
CDs are savings tools that guarantee principal and provide a fixed
interest rate. CDs pay a higher interest rate than a checking or savings
account and are insured by the federal government. CDs are invested in
for a set amount of time, such as 6months, 12 months, etc. If you withdraw
your money before the maturity date, you are charged a penalty.
Benjamin Franklin said, “A penny saved is a penny earned.” That is sound advice coming from the face of the $100 bill.
Here are just a few things you can do to save money:
Cancel memberships that you don’t use - Evaluate your use of a gym or pool membership. If you are not using these facilities, don’t pay for them.
Clip coupons – Probably the easiest way to save money is to use coupons when shopping for groceries. Once you have your grocery list planned, go through your coupons to see where you can save money. You may also want to compare the grocery stores advertised prices. Often prices will vary greatly between products. You may find that the savings can be substantial enough to warrant splitting your list between two stores.
Drive less – If you live near one or more coworkers, organize a carpool to save on gas. Plan your daily errands and try to do more of them in a centralized location.
Prioritize your spending – Make a list of everything you spend money on during the week. Now split that list into necessities and luxuries. Examples of necessities are groceries, gas, rent or mortgage and any other monthly bills. Examples of luxuries are going to the movies, coffee from the gourmet coffee house and eating meals out.
Once you have completed your lists, analyze them to determine what luxuries you can trim down on or cut out completely. A few small changes can save a lot of money. For example if you spend $1.50 on coffee 5 days a week, that can add up to almost $400 a year. By brewing your own coffee in the morning you can save over $350 a year.
