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5 Steps To Save Money

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The hardest thing to do after earning a living is to save the money earned. So saving the hard earned money is the second most difficult thing to do. A lot of people do not have a budget for their expenses and it will spiral out of order and will cause a person to either save less or worse become debt addict- hooked on home, bank, personal, car and other loans and at the same time with a credit card that is fully maxed out.

The first rule of saving money is very simple- spend less than you earn. Sounds simple to do but hard to follow unless you have a budget that you stick very closely to.

Step 1- List out all the expenses for the next 30 days from today. Buy a small and cheap notebook and note down everything you spend on, household bills, groceries (keep the receipts), magazine or newspaper subscriptions, loan repayments, transport costs-fuel or public transport costs, costs of lunch for 30 days when you eat out as you are working etc. Note down every nitty gritty thing, even that cup of Starbucks coffee with whipped cream. If you have a family, ask them to do the same for 30 days just to humour you and check that they do it, every day for 30 days. At the end of 30 days, they will hate you. But 10 or 20 years later, you will be comfortably prepared for retirement.

Step 2- At the end of 30 days, sit down and categorize all your expenses. You have only two columns- One is 'necessities', the other is 'I love myself'. Look through your groceries list and categorize all the items even the ones that costs under a dollar and go through this exercise. If not having milk will kill you, put it under necessities, else put it under the category 'I love myself'. So if not having a newspaper to put in your bag to bring to your office will kill you, again put it down under necessities. Total and tally the items for both categories and at this time think hard to see if there are any expenses that are missed because it is not payable monthly but yearly. It could be insurance payments for house or yourself or taxes that you pay at fixed timing but is not due this month. Again put it in either of the two columns. Is it necessary or is it something that is 'I love myself'. Add up each category.

Step 3- Leave the necessities column untouched for now. But look hard at the 'I love myself' category. Number the 'I love myself' list according to what you feel is something that even though it is not a necessity but is something that you feel that you will want to have with one being the one nearest to a necessity and the last in the list the most frivoulous. Here, those people who have a lot of loans that needs repayment and are up to their neck in debt, you are only allowed to keep 3 items. Those people who have only their housing loan but have not been saving much with zero rollover credit card debt can keep up to a maximum 10 items in the list. Total up your new budget- the necessities total and your 'I love myself' total is now your budget.

Step 4- Don't smile yet. If you fall into any of the category below you need to redo Steps 2 and 3

  • (a)If your total household salary (you and your spouse plus whoever else is contributing) minus your budget is negative, please redo Steps 2 and 3. You need to move items from necessities to the 'I love myself' category.

  • (b) If your total household salary minus budget is positive good for you. But if the savings amount falls below 25% of your salary (ie if your household salary is $5000 and you tell me you can only save $200 after expenses, please redo Steps 2 and 3, and love yourself more and put more from necessities to that-minimum for $5000 is $1250 saved).

  • (c) If you have fall into the category of just housing loan without credit card debt and whatever else loans, to make the process less painful, you are allowed to save only 20% of your salary but no less. Else please redo Steps 2 and 3.

Step 5- Open a savings account (joint account if you and your spouse both earn and contribute to the household) where you put the money that you have budgeted as savings into it the first thing you do when you receive your salary cheque or amount in the bank. So if you earn $5000 and budget $3500 as expenditure with $1500 savings. PUT THE $1500 into the savings account FIRST before spending a single cent AND you and your spouse will swear never to touch the money except for investments and when you retire or when either one of you go unemployed. BOTH of you must agree that you need the money before you can withdraw it to spend.

For the people who have not saved any money congratulations, you have just saved 20-25% of your monthly salary as a start. For people with debts to service, put 75% of your money saved to service the debt that has the highest interest (normally the credit card debt). The rest of the 25% you are to save at least one month's salary in your bank account first before investing the surplus amounts. Even if you have debts to service, you need emergency funds for times of need.

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