Wednesday, August 25, 2010

Make Savings A Priority

Tip #270 - Make Savings A Priority. When thinking about money, many of us think about how we would spend it - a new car, a vacation, new clothes, etc. Most of us don't think about how much we would save. Saving is actually secondary in most people's thoughts with regard to money. However, if having money is one of your goals, then you need to make savings the primary thought. Many of us would like to be "rich." but if all we think about is how we would spend money, then we aren't like to become "rich." Instead, we need to make saving, rather than spending, a priority. Once savings becomes a priority, the getting rich part will fall into place.

If you were to make a budget on how you will use your hard-earned money, you would need at the top of the list a housing budget, a food budget, a utilities budget (such as water and heat), a transportation budget (to get you to and from work), and a healthcare budget. The above items are priorities in most American lifestyles. After that, you should budget for savings - how much you want to put away for YOU. You want to have some wealth to your name, don't you? Then decide how much you want to save each month for you. This money will give you the power to do things you want to do when you wan to do them.

After you decide on how much you want to save for yourself, then you budget however you want with the leftover income - cable t.v., a yearly vacation, a daily coffee, dinners out, etc. The key is to make sure you make savings a priority above your wants. To simplify, your budget should look like this:



Once we start making savings a priority above our wants, we will, over time, have enough money to take care of our wants and other needs that arise. Depending on your income, and your expenses for your needs, you may still have enough money for wants in your monthly budget. But you shouldn't spend all of your money on wants after your needs have been satisfied. Savings should take priority over wants in your monthly budget. Then down the road when a chance to take a ski vacation comes up, you can look to your savings to do it. Or if you decide you want to add a deck to your house, you can do it. Or if your son suddenly falls and breaks his leg, and you have to pay all kinds of doctor and hospital copays and leave work early without pay to drive him to various appointments, you can do so because you have money in your savings account. You wouldn't be able to pay the doctors with the daily cups of coffee that you drank over the previous years.

In Real Life (IRL) - When I was younger I made savings a priority in my budget. I shared housing with friends when I was single. I split utilities with roommates. I limited my eating out. I didn't waste money going to bars. And I socked $200 away per month in a mutual fund. And I did this on about $20,000 per year in Washington, DC. (I was fortunate not to have a car payment or student loans.) I also budgeted for one vacation per year and going out with friends (although usually to inexpensive locales).

Over time, I saw my savings account grow because having savings was important to me. Believe me I could have spent away $200 per month pretty easily - higher-end clothing, dining out in nice restaurants on a regular basis, buying a fancier car, living on my own rather than have roommates, etc. But instead, I made saving money a priority, and after 10 years of saving $200 per month, I had more than $25,000 to show for it. (I actualy had more than this because I upped my savings as my income grew.)

Of course everyone's situation is different. Some people will have more needs to pay for than others such as medical expenses, student loans or debt repayment. And therefore, their savings will be less than others. But the key is to do the savings on a regular basis above frivolous wants that cut into your chances of attaining wealth over your lifetime. As long as savings becomes a priority, you will find you have more power to spend moeny as you please down the road.


ann k said...

What a wonderful article! Its only if we make Saving money every month a priority, would we be able to see the 'power of compounding' and enjoy its benefits. Thanks for the reminder.

sophia said...

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