How to Get Yourself on the Savings Track

Creating a financial budget can be a challenge. Committing to it over the long term may be even more difficult. But, a “pay yourself first” approach can positively impact your long-term budgeting, spending, and investing plan.

Here are a few tips to begin your budget planning and get on the savings track:

1) Watch what you spend. Begin the process by recording all your expenses, including living expenses, utilities, child care or elder care services, and necessities such as food, clothing, and medical care. 

2) Treat savings like an expense. You may be more likely to put money aside if you consider your savings an expense that must be paid on a regular basis. This is what is meant by “pay yourself first.”

3) Allocate income in terms of percentages. Many expenses can be gradually reduced without making drastic changes to your lifestyle. Determine what percentage of your income goes to each expense, and then categorize these expenses as either fixed or flexible. While you have little control over fixed expenses, you can control your flexible expenses. Flexible expenses are generally the ones that erode a savings plan and may sabotage a budget.

4) Prioritize your expenses. Take your list of expenses and rank them in order of priority. Eliminate the unimportant expenditures, and redirect this money to an investment and savings program. Gradually, reduce unnecessary expenditures. As you eliminate expenditures, write a check for a similar amount and deposit it into a special savings account.

5) Minimize taxes. Make pre-tax contributions to an employer-sponsored retirement plan, such as a 401(k). Earnings in these retirement savings vehicles accumulate on a tax-deferred basis. Or, you may contribute up to $5,500 (for 2017) per year ($6,500 if age 50 or older) on a pre-tax basis into a traditional Individual Retirement Account (IRA), or $5,500 ($6,500 if age 50 or older) on an after-tax basis to a Roth IRA .

Remember, putting yourself first means making your financial future and well-being your top priority. By getting on the savings track now, you may be better prepared for the future of your dreams.

 

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