I was raised on the envelope system. My father had an envelope for each budget category like groceries, gas and entertainment. He would divvy up the cash he earned and when an envelope was empty, we waited until the next paycheck. It worked. There was always food on the table and money in the saving's account.
While budgeting software, online banking and mobile apps have replaced the envelope system, many of the principles remain the same. Know what you spend, never spend more than you have, and save for a rainy day. In fact, dad summed it up best: In my day if you earned a quarter, you saved a dime and spent fifteen cents: your generation spends the quarter and borrows another quarter at 20 percent interest! You know something, dad is right. And this is why credit card debt has become the toughest challenge for consumers today...you can't get out from under it once you are in!
Step 1: Take financial inventory.
It's time to face the facts and figures, and know where you stand financially. Add up your assets, the things you own like property, cash and stocks, then subtract your liabilities or debts like mortgage, student loans and credit cards. That's your net worth.
Then, calculate the difference between your monthly income and your monthly fixed spending (mortgage, insurance premiums, car payments). Decide how much of that difference you would ideally like to save each month. Whatever is leftover goes to variable spending, in other words, areas of the household budget you have some control over like clothes, entertainment, and even groceries. Variable spending gives you some control since you can do things in each of these areas to reduce spending. For example, when it comes to groceries, you can use coupons and shop for what is on sale; clothes you can buy resale or use coupon codes when ordering online in addition to sale prices. Even entertainment deals can be found with local coupons or you can attend college performances and recitals.
Once you have the overall picture of your financial situation, it's time to dig in and see where that variable spending is going on a daily basis. Save all your receipts for at least a month and divide them by category (envelope system, anyone?), and then analyze your spending. I did this exercise with a mom of two and she realized she was spending around $600 a week on groceries. That's around $31,000 a year!
Now, your spending is real and there are probably a few categories that make you want to scream, whether it's money spent at the gas pump or all those takeout meals. Does your saving's goal from step 1 still feel realistic now that you see just how much money goes out every month?
Step 3: Set manageable, measurable and specific goals.
Now it's time to hone in on specific categories and cut back, so you can set aside money each month. Create goals for the month or week, rather than the entire year, and continue to build on them. Write them down so you are accountable and acknowledge little victories along the way. Broad goals like I will save $5000 this year tend to lose steam (think New Year's Resolutions), but breaking it up by month will give you something new to strive for and can achieve the same end game. This month I will call all utility companies and see if I can cut my monthly payment. Next month, I will plan weekly menus around store ads and coupons to save $50 a week.
Don't feel like you need to give up the things you love completely. A soy latte 5 days a week might cost you $845 a year. Indulge in your coffee shop treat just twice a week and stick to break room coffee the other three. Annual savings: $507 and you didn't even have to go cold turkey!
Bottom Line: Think small and see big results. Little savings add up, so trim the family budget anywhere you can, no matter how minimal it may seem. Start using five, $1 off grocery coupons each week on things you already buy like cereal, deli meat, and pet food. Basically, coupons are free money and in a year's time, without changing the way you eat or shop, you've saved $260 on groceries.
If you have a portion of each paycheck deposited directly into savings, then up that amount by 1%, little enough your probably won't notice, but big enough to make a difference. If you make $50,000 a year, that's an extra $500. By doing these simple things you will save a lot of money throughout the year. And don't feel that the time spent isn't worth it because first of all it's not a lot of time and, secondly, yes it is worth it! In fact, you can't afford not to these days!
Two time Emmy Award-winner and consumer savings expert, Jeanette Pavini has been providing consumers with money-saving tips they can use for more than a decade. Teaming with Coupons.com, Jeanette puts her expert feedback to use immediately with real world tips and advice. Jeanette's consumer savings tips have been featured in Oprah, NY Daily News, USA Today and more.
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