Starting A Budget
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Savings Category

In tough economic times, starting a budget is more important than ever. It is easy to let your savings slide when you are trying to pay the bills but planning your savings is as important as planning your food budget.

Plan Your Saving
Most people have heard the phrase, "time value of money." However, have you ever really applied it to yourself and your savings? Getting into the habit of putting something aside every pay period is an important strategy to building up your savings account. Here is a worksheet that you can play with to see the impact of putting a little away every month.

How Much Should I Save?
Real financial freedom begins with two steps. The first is starting a budget. The second is saving $1,000. Why save $1,000? Because it will help you break the debt cycle. You know that at some point either the car will break, the house will break or the kid will break. When you have a little money in savings you can usually cover those costs without going into more debt. Even if those expenses are more than $1,000 you can reduce the additional debt you will incur.

Is $1,000 Enough?
Once you have $1,000 in savings, your next goal should be to save one-month's worth of living expenses. This buffer allows you to handle those less frequent emergencies that can be real budget busters.

3 To 6 Month's Living Expenses
After you have saved one-month's worth of living expenses you want to increase your savings to about three to six month's worth of living expenses. This may sound absurd to some people but I think that is because we in the United States of America are no longer have a culture of saving for the future. We are a society of instant gratification. We need to go back to the way we were. When you have six-month's worth of living expenses in savings you have transitional funds. Should you lose your job and be out of work, you can at least pay the essentials every month even if you cut back on the non-essentials.

Difference between Saving And Investing
Once you have your savings built up you can funnel the extra to your investments. So what is the difference between savings and investing? It is really a matter of liquidity and risk. You should be able to get to your savings quickly without penalty. Your investments are really your long-term savings for retirement.

Be Wise - Be Safe
Some people would balk at keeping six-month's worth of living expenses in a savings account because the return is so much less than if that money were invested with a broker. They might say that one or two month's worth of living expenses is enough in savings and the rest could be invested because they would have the time then to get at the money if they needed it. That is probably true. However, you are incurring greater risk and could lose it in the market and not have it at all when you need it. That is probably not the wisest solution.

A Valuable Tool
Starting a budget is not hard but takes diligence to stick to it. It is a valuable tool in planning your spending, saving and investing.