Saving after collecting salaries or making profit can be quite difficult in these recent times and with the dwindling effect of the economy, there are just so many things you need and want but how can you measure up, save and still be able to try to satisfy those insatiable wants.
I like to think that many of us take out pen and paper when the pay check comes in to review what the month’s spending and budgeting would be. You’ll allocate certain amount to bills, food and necessities, emergency funds and just how much to save.
The discussion is how does one spend and save at the same time?
- Calculate Your After-Tax Income
Your after-tax income is what remains of your paycheck after your taxes are taken out. If you’re an employee with steady pay check that comes every month, it should be easy to figure out and as self-employed, your after-tax income equals your gross income minus your business expenses, such as the cost of your laptop or airfare to conferences, as well as the amount you set aside for taxes. You’re responsible for remitting your tax payments to the government as an employer of yourself
- Value Savings
Some people’s natural instincts when they get money is to spend the moment it reaches their pocket, anyway life is too short right? Others are just good at saving and investing while they draw enjoyment from growing their wealth.
Saving allows you to enjoy greater security in your life. If you have cash set aside for emergencies, you have a fallback should something unexpected happen. And, if you have savings set aside for discretionary expenses, you may be able to take risks or try new things.
Try to adopt a mentality that values savings because in the end, money invested or money saved will almost always benefit your life more than money spent on products
- Pay yourself first.
This method helps you save rather than spending all your money. Even if your budget is tight, as soon as you get paid, put some money into savings. Saving first, rather than last, means you’re much more likely to save money instead of spending it.
- Track Your Finances
Before you start spending the money, you will need to understand where your money is going. You’ll have to make a budget and track both your income and your expenses. Once you know where your money is going, you can plan on how to spend better.
- Limit Your Needs to 50% of Your After-Tax Income
After drawing out your budget, figure out how much you want to spend each month on groceries, housing, utilities, health insurance, car payments, and car insurance.
It is important to know the difference between wants and need, Wants are desires for goods and services we would like to have but do not need things you can forgo While needs are a special kind of want, and refer to things we must have to survive, such as food, water, and shelter.
According to Warren and Tyagi and their 50/30/20 rule, the amount that you spend on these things should total no more than 50% of your after-tax pay.
- Try the 50/30/20 rule for budgeting
If you’re new to budgeting, try allocating 50% of your take-home pay towards necessities (food, shelter, utilities, clothing, etc.), 30% towards lifestyle choices (vacations, gym fees, hobbies, cell-phone plans, etc.), and 20% towards financial goals and priorities (extra debt payments, savings, etc.).
- Which Habit Drains Your Budget
After tracking your finances and limiting your needs, search deep for habits that will drain your budget. These habits could include expensive hobbies, eating out, shopping, drinking or any number of other financial drains. When you figure out which habits are eating up large portions of your income, you can then evaluate whether or not these habits are really necessary.
- Consider about Long-Term Benefits of Purchases
Impulse buying is very avoidable; before you buy something, think about how it will affect you in the future. How long is it going to last? Is it going to put you in debt? Is the value you will get out of it over its lifetime worth the cost?
These are questions you can use to determine if something is really worth buying.
- Limit Your “Wants” to 30%
This sounds great on the surface. If you can put 30% of your money toward your wants, you may be thinking about beautiful shoes, bags, sneakers, latest PS5, salon haircuts, and flex but let it include the include the basic niceties of life
- Stop Trying to Impress Other People
Stop trying to maintain an image you’re not, you’ll end up spending far more than you actually have and eventually run into debts. Purchase what you can afford and enjoy.
- Start Investing Early
By investing at an early stage of life, you learn a pattern of financial independence and discipline. An early investment teaches the real difference between investments and saving.
Reason why it’s a great idea
- More Recovery Time
- Save More
- Improves Risk Taking Ability
- Time Value of Money
- Secured Future
- Support Your Retirement Plan