If your savings isn’t your first priority, you will soon find that it doesn’t even make the cut at all. You’ve WORKED HARD for your money, so keep some of it for yourself! Often times, the excuse “I can’t afford to save money” is used. Although this may be true in certain cases and situations, for the majority of people it typically isn’t. If you take a look at your bank statement and find that you spend $2.50 every Monday-Friday on a coffee to-go before work, that is $25.00 every two weeks that you are robbing from your future self. It may not seem like that $2.50 is a big deal, but over the course of a year it comes to $650.00 that just ends up in the toilet – literally! If you live the paycheque-to-paycheque life, you can’t afford NOT to save money.
What Does This Mean?
Pay yourself first. Although simple enough of a concept, it is often overlooked. The easiest way to do this is to do a basic budget for yourself.
1. Find out what your monthly take-home pay is. This is your income minus deductions.
2. Calculate all of your Priority 1 payments. These are all of your bills that are paid on a regular basis and necessities to live. Include your mortgage or rent payment, vehicle payments, utilities, insurance and minimum credit card payments. Don’t forget the basics like food, medications and children’s clothing. Clothing for an adult goes further down this list, as you aren’t likely to need replacements as often as a growing child. Since bills are typically a fairly static amount, they are quite easy to calculate. If some of your payments vary month-to-month (for example heating bills that are low in summer and high in winter) budget using your high payment point as a base. This way, you won’t find yourself looking for extra money in your budget to cover a high bill – instead you can use the savings to Pay Yourself!
3. Now that you know how much “extra” money you have left, you can determine your Savings amount. Set this to the side right away! A great way to streamline this step is to set up automatic deposits to your savings account every payday. Now don’t touch it, unless a) you reach the specific goal that you have set this money to the side for (retirement, home down payment, etc) or b) there is an emergency.
4. All of the leftover money is your fun money! Use this for your restaurant meals, entertainment, clothing and other “want” items.
It will take a little bit of planning now, but spending the time to work out your finances will pay you back with interest (literally!) in the future. Plus, once you run the numbers, you don’t have to make adjustments until your financial situation changes.
One thing that can always be counted on is change. Whenever your financial situation changes, you should revisit your budget and make any necessary adjustments. If bills went up, shuffle your money around. If you got a raise at work, make sure to account for it in your savings and spending plan. As important as it is to boost your savings, if you trim your budget so much that you don’t have any room for fun, you will quickly find a loss of motivation to save. So keep some of that bonus money for fun spending too!
Whether you start big or you start small, the most important part is simply that you start!