Whether you are just getting started or you are looking for ways to improve your current finances, we can all use some practical saving advice. Savings often gets overlooked and finding extra money at the end of the month can be a challenge for many people. As a matter of fact, more than half of American households are living paycheck to paycheck and nearly 1 in 5 (19%) don’t have anything set aside for emergencies. http://www.marketwatch.com/story/half-of-americans-are-desperately-living-paycheck-to-paycheck-2017-04-04
That’s why I have put together a short list of a few things to help get you started.
Cash Flow Planning
First and foremost, as a Ramsey Solutions Master Financial Coach I have to give credit where credit is due, (Please see my disclaimer here)! You must get on a written plan for your money. In business, they use a great term to talk about this taboo subject; it’s called cash flow planning. Doesn’t that sounds like something we want to learn more about? Surprise, it’s a simple budget; I apologize for my profound language!
Creating a Budget
When did the word “Budget” become a bad name? When families and individuals felt abused by it. At some point it became a tool for restricting others and, well it caused a boatload of resentment. The fact is, when used properly, and shared with your family, it’s not meant to be a tool for restricting. A budget can be quite the opposite really. A good budget is designed to let you plan your cash flow; you get to tell your money where to go and this includes saving money! Now, doesn’t that sound better?
I always recommend to those getting started, to get back to basics. Paper and pencil is all you need to write out a budget. Start with your take home pay, list all of your expenses for the month (or week, but that is another discussion). I teach zero based budgeting, which means any money leftover after your deduct your expenses from your income, should be allocated toward your current goal. If establishing an emergency fund is your current goal, then all remaining money gets allocated to your emergency fund, leaving your budget at Zero dollars remaining.
Use a Calendar
I talked about the need for creating a budget so you can establish priorities and a plan for your money. One thing that is often overlooked when creating a plan is the need to plan. Yeah I know, sounded funny when I typed it too! I teach my clients to use a calendar in their planning. You likely already use a calendar at work or home to keep track of meetings, trips or to keep track of family events and personal appointments. Why not use one when creating a plan for your money too? It really is as simple as it sounds, but I will elaborate a little. When planning for April, since it happens to be financial literacy month, take out the calendar for the month and look at all the things you have planned.
There are two major dates this month that may already be reflected on your calendar, Easter Sunday (April 16th) and the Federal Tax Deadline (April 18th). Are there any other significant events for you this month? Any birthdays? What did you plan for spring break or have already planned for that summer vacation? Maybe it’s time to buy new swimsuits for summer? Is your cars maintenance or registrations due? These are just some that come to mind. If you are not already adding items like this to your calendar, it’s something to think about.
The point here is, by using the calendar you can work on eliminating unnecessary financial stress by taking a little time to plan ahead and save for those events that often catch us off guard. Of course there are likely to still be unexpected events or situations that arise, but now rather than reacting to those and to the events that could have been planned, you have reduced the amount of money and time required to adjust to these situations. A simple savings account is all that is required for putting money aside for some of these events. We will talk a little about that coming up.
If you are struggling to create a written budget, I would be happy to speak with you and work with you to discover what may be standing in your way. CONTACT ME or book your free consultation here: book online
Implement an Envelope System
Dave Ramsey also has another perspective as we talk about saving! He brought your grandmothers money management practice back to life by refreshing our use of the Envelope System. I have seen many writers talking about the envelope system and how they apply it in their lives, like this recent article from Forbes:
I don’t want to insult anyone’s intelligence here. Personal financial struggles can create road blocks in our mind when trying to understand how to approach them, so for simplicity sake, an envelope system is simply a way to keep track of our money by breaking the categories from our budget into cash and literally stuffing or separating the cash into those matching envelopes in our wallet.
There are many places you can get a great envelope system, starting with Dave’s website of course, and his daughter, Rachel Cruze, recently introduced an elegant and updated version using clips instead of envelopes, and is an attractive clutch type wallet. (My Daughter has one and loves it). There are many decorative and designer variations out there. https://www.daveramsey.com/store/cEnv.html?snid=store.envelopes
You can also learn more about how the Envelope system is used here: https://www.daveramsey.com/blog/envelope-system-explained
Cash Really Is King
You have probably heard it at some point, but have you experienced it? Cash Is King, it’s not just a catchy phrase. There has been a ton of research conducted on this topic and according to Dun & Bradstreet people spend 12-18% more when using a credit card over using cash when making purchases. Start making cash spending a priority. Divide your expenses into those items, which can be paid in cash and those that are paid from your bank account (online transactions). These cash purchases will fund your envelopes.
Not ready for a complete conversion to cash just yet? Consider cutting the ties to your credit cards, and at least changing over to Debit cards. According to Visa and MasterCard, you are offered the exact same protections when you make purchases using your Debit card with the Visa or MC logo. The key thing to remember is that you are not going to use it like an ATM Card, you want to process all of your transactions on Debit as if it were a credit card.
Establish an Emergency Fund (Saving as Murphy Repellent)
The best way to avoid a budget shortfall due to unplanned events is to plan for the unexpected. Yeah, I know, sounds a bit strange. But seriously, an emergency fund allows you to plan for those unexpected life events, medical expenses, vehicle repairs etc… Sometimes, Life happens and by establishing an emergency fund, you are planning for life. Failing to remember your family members birthday is not an emergency by the way, that is simply not taking the time necessary when establishing your budget. Birthday, scheduled maintenance, vehicle registration are all great examples of things that do not constitute an emergency, they can be planned for. If you are bumping up against events like that and justifying them as emergencies, STOP. Go back to the calendar, and adjust.
When you plan, you eliminate a ton of risk and the potential for a budgeting disaster!
Plan For Large Purchases (Saving)
In the commercial real-estate industry, well commercial business in general, the term used for what I am about to tell you is Sinking Funds. Simply stated a sinking fund is planning for a large purchase by saving over time. If you are responsible for a building, you know it has a 10-year roof. Would it be wiser to wait until the roof needs replaced to just pay for it? Or would you think it a better plan to start saving now, so that when the roof needs replaced you have the money already earmarked? I hope you see the reward in saving over time, but just in case you aren’t there yet; what happens in 10 years when you have a slump in your sales or profits when the roof needs replaced and you decided to wait? Right, there is no money to replace the roof. To clarify how this works, let’s pretend the roof is going to be 30K. 30 K over 10 years means you would need to save approximately $830 a month from your business income in order to meet that need. (Or approx. $60 per month)
Sinking Funds can easily be applied to your personal finances. You know your car is not going to last you forever. You also know you will desire updated furniture at some point in the future. So simply deciding at what point you may want to replace an item, and breaking that savings down to monthly or even weekly allotments will ensure you have a fund established for it.
Sell some Stuff
Dave Ramsey likes to say, sell so much stuff the kids think they’re next! You may find that getting rid of some things will help you also get organized in your home. Check out this article all about getting organized and how it relates to saving money. https://organizingmoms.com/organized-will-save-money/
Yes, technically selling stuff does not save you money, but it’s a quick and fairly easy way to earn some extra cash and get better organized. Look around the house and decide on what you can do without, what you have already been doing without and what you no longer need or want. Have a yard sale, take pictures and post them online with Craigslist or your local for sale pages on Facebook etc…
No Matter What you Do…
These are some simple ideas to get you started on savings. I think the best point to make here, is no matter how and what you decide to do, taking action today is the most important consideration. If you don’t take action, you will most certainly avoid saving money moving forward.
I would love to hear your money savings tips! What actions have you implemented that you found to be effective in helping you save money? Why did you decide to turn your finances around?