This recession has many Americans sitting down to write a personal budget for the first time. It’s essential to know exactly where your money is going and to live within your means. Saving is the name of the game.
Your budget is the blueprint for your financial home. In order to build a safe and secure financial home, you have to establish a foundation of savings. Creating an emergency savings fund should be a top priority in your budget. One of the most common mistakes people make is not itemizing savings contributions within the budget. It’s not enough to direct whatever’s left at the end of the month to savings. If you do that, you’ll end up saving far less.
Instead, consider your contributions to savings another expense like your rent or mortgage payment or a utility bill, and pay it first. If you consistently contribute to your savings immediately from your paycheck you will come to not even miss the money you save. Better yet, have your savings contributions automatically deducted from your check and deposited into your savings account.
An emergency savings account is crucial in order to protect you from unexpected expenses. If you lose your job, for example, you'll still have to pay all of your expenses, but you won’t have any income to do it. How would you pay your bills while you found a new job? Most experts recommend saving at least three to six months of your expenses in an emergency fund for just such an occasion. This may require you to up your savings contributions in the short term, however.
Directing a more substantial portion of your income toward savings may leave you with less money for other purchases. That’s where smart spending comes in. You don’t have to sacrifice quality to enjoy savings. Now is the time to become a savvy shopper.