By Lynnette Khalfani-Cox, The Money Coach®
If you’re trying to manage your budget properly and keep your finances under control, you already know that going overboard with your spending can be a huge financial mistake.But even if you understand the fundamental rule of budgeting – never spend more than you earn – chances are you may be violating another crucial principal of budgeting.
What’s the mistake? It’s failing to include a “savings” category in your budget.
Numerous studies show that most Americans are poor savers. In fact, a 2017 report from the Federal Reserve Bank revealed that 44% of adults in the U.S. don’t even have $400 in savings.
More recently, the latest financial security index survey from Bankrate showed that in 2018, only 39% of Americans had $1,000 in savings to be able to cover an emergency, such as a sudden car repair or unexpected medical bills. A bit part of the problem is that the vast majority of Americans have not yet gotten into the habit of saving money each and every month. And that includes those who do actually try to budget on a monthly basis.
So here’s the quick fix.
Take a look at all the expenses currently listed in your budget. (If you’ve never even created a budget at all, now is a great time to start)! Once you review all the expenditures in your monthly budget, you’ll no doubt notice a lot of necessities that must be paid – expenses like your rent or mortgage, your car note, or buying food.
Pay Yourself First
Well, in order to avoid making a major budgeting mistake, you need to add a category for “savings” into your planned monthly budget, and think of “savings” as a necessity too. This is the heart of the concept: “paying yourself first. If you don’t routinely include “savings” as a part of your normal monthly budget, you simply will not sock away money on a consistent basis, and you’ll be like those 6 out of 10 Americans who lack any substantive savings.
It’s just that simple.
Fortunately, you can turn things around by taking an honest look at your expenses and cutting back – even if ever so slightly – on things that aren’t necessities. And don’t fret if you’re not able to save large sums of money each month. Saving $50 or $100 a month is a good starting place. If you can do more, go for it. But even if you can only eke out $25 a month, that’s better than nothing. Plus, putting savings into your monthly budget will help you to become a more disciplined, consistent saver – which is a very good thing! Ultimately, building up your savings is a great way to help solidify your finances and avoid future money problems.
Your budget is a tool to get help you not only manage your monthly cash flow, but also amass the cash you’ll need to keep you and your family secure in good and bad times.
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Extra Credit provides general information to help improve our Member’s financial lives. Every situation is different, so please contact us for guidance on your specific needs. The advice provided in Extra Credit is not intended to serve as a substitute for speaking to a loan representative, financial advisor, or BALANCE counselor who can help tailor a solution for you.
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