Budgeting your Savings - Did You Let Your Piggy Bank Get Away?
|I think most of us have at some point in
our lives. Some how we forget to feed the little piggy. And, like most neglected
"pets", your piggy bank will disappear if you don't feed it. A personal budget
is important to create financial independence and setting goals for feeding that
"piggy bank" should be an important part of your budget!
The most successful financial plans allow you to INVEST IN YOURSELF! It just makes good sense. A plan to build financial security should always be considered essential to any budget.
Even if you're on a plan to reduce debt, you need to include plans to build a foundation for future financial security. A good savings routine and variable expense account are essential to building a strong foundation for financial independence.
A variable expense allowance in the budget is important to save for those expenses that seem to "hit us unexpectedly". Funny thing is, we know these expenses will occur. They are an inevitable fact of finances for most of us. So, why do we call them unexpected? I can't explain why, but there are many of us who make this very BIG mistake in our budgeting.
Some expenses don't occur monthly. Some are paid out every now and then, quarterly, yearly, or bi-monthly, or semi-annually. These are expenses like car insurance and maintenance, home insurance and maintenance, property taxes, income taxes, medical expenses (prescriptions, deductibles, co-pays), pet care, school expenses (supplies, trips, activity fees, books), and clothing. Some of these are huge expenses that can put a ripple in any good budget if not planned for.
Most of us have good intentions, but it's easy to fall prey to the credit card companies without a plan to cover all of these "unexpected" expenses. The term still makes me chuckle. I mean, don't we "expect" to wear clothes? It's even funnier to me knowing that I was guilty of this very thing. Poor Planning! Not expecting what should be expected.
Lesson ???.Don't forget about this expenses in your budget. They will sabotage the best of intentions!
The other essential ingredient to a successful budget is a savings plan. A good savings plan should have a goal to reach at least the minimum amount necessary for you to survive for a three to four month period. It may take time, but this a strategy that provides a fail safe against a financial crisis. Crisis such as serious illness or job loss.
Trying to save money by cutting your savings budget out will eventually backfire on you. It is essential to build financial security, in order to remain debt free, you must not compromise your savings expense.
Only if there is no way to avoid it should you reduce the amount of your monthly savings commitment.
Start with 2-4% of your monthly income if you have to. A little is better than nothing, and then you can build it up from there to at least 10% of income as funds become available.
Some Important Points:
Applying extra funds to your debt first will not help you gain financial security. Emergency savings and variable expense savings goals should be met before debt is reduced in order to remain debt free. After all, these sources will be the foundation you will fall back on in order to remain debt free. If you can build a reserve for emergencies you won't have to use those nasty credit cards. This is an important defense that builds financial security. If you use a good debt reduction plan, debt will reduce, and in a reasonable amount of time. As long as you stop creating debt. Just be patient.
Paying more on your debt, instead of saving, is not going to help you pay for that major car repair when the car breaks down. It will most likely do the opposite of your intended plan and send you running for the credit card to bail out.
Of course once you have reached your goals for savings and your variable expense account, then you should start applying extra funds to your debt reduction plan.
Using money saving tips reduces expenses in your budget in an effort to help you build that financial security. Through saving money on everyday expenses and living a frugal lifestyle, you free up monies to apply to your savings and variable expense account. These are the defenses that build a strong foundation for your financial independence.
These "defenses" prepare for the inevitable expenses that will arise. Many of us had just forgotten to plan correctly for these types of expenses. That's how we got in the "big red mess" to begin with. Properly preparing for necessary variable expenses is your defense against feeling the need to use the credit cards.
Once you have balanced your expenses with your income, you have created a Budget for Debt Free Living. Congratulations! You are on your way to financial freedom and security. Enjoy! This concept is simply "living within your means." Something that many of us in today's "plastic society" have forgotten to do.
Live Debt Free to Be Free. You Deserve It!
Cheryl Johnson is a mother of four helping herself and others become and stay debt free. Publisher of Simple Debt Free Living at http://www.simpledebtfreeliving.com - A self-help plan, ideas, and resources for debt management, household budget planning, frugal and debt free living, and extra income opportunities. Money saving tips for groceries, clothing, gifts, home decorating, weddings, and much more. A money saving tip a day keeps the credit card away.
Available from ElderCare Online www.ec-online.net ©2006 Prism Innovations, Inc.