When a recession hits, like the one that we’re experiencing right now, one of the first areas where consumers seek to cut back on is with their personal savings. Many people look at this area of financial planning as something that is expendable, an optional part of a budget, a task that can be avoided during tough times.
As we all know, it is easy to eliminate those things we don’t consider to be important, but it isn’t necessarily the wisest way to go. After all, if you miss saving money even for just one year, then you’ll have a reduced amount of funds available for retirement, your children’s college fund, vacations, Christmas, etc.
Of course, when expenses increase and income has decreased the quest to save money becomes an even greater challenge. Most certainly if you recently lost your job or took a pay cut, saving is something you’ll probably need to put on hold until your financial picture improves. For everyone else, establishing a savings plan now can ensure that you’ll make it through 2009 with your financial goals in place.
Let’s take a look on several steps you can take to save money in 2009:
Establish Goals – What are your goals in life? American consumers have gotten into a bad habit of financing their hopes and dreams with credit cards, living the high life while being weighted down by a mountain of debt. If this isn’t the case for you, congratulations! Otherwise, if you are burdened by debt, you’ll want to pay off your financial obligations first before establishing a savings plan. Remember: most savings will yield 3-5% interest while interest on credit card debt will range between 10-18% — clearly, reducing your debt first makes sense.
Make A Plan – Years ago, when I was saving money to purchase my first home, I set aside a certain amount of money each week in a bid to reach my goal. Three and one half years later I was a proud homeowner as my savings plan worked out as I had hoped it would. If you have a goal in mind, whether purchasing a home, paying cash for a new car, funding a dream vacation, covering college costs for your children, etc. the best way to reach your goal is by setting aside funds each pay period.
Cut Expenses – Perhaps the reason you’ve been having difficulty saving money is that your expenses are not under control. Not just those trips to the coffee shop to fund your daily mocha latte urge, rather those expenses which can easily be controlled or eliminated. Perhaps combining cable, phone, internet connection to one vendor is the best way to go or shopping at a warehouse club for your major food purchases is something else for you to consider. If you have credit card debt, perhaps applying for a low or zero percent interest card and transferring balances to the new card can help you reduce your debt faster.
Set Up A Budget – The “B” word is a favorite with too many households, but having a budget in place can help you reach your goals without worrying whether you’ll have the funds to pay for everything. There are lots of sites online where you can find free budget planners and planning guides, just the right information you need to get started.
Pay Yourself Consistently – Setting aside money on a consistent basis is the only way to stay on course. Set up an automatic withdrawal to take money out of your checking account and deposit it into a savings account regularly. If the growing funds is too enticing for you, make sure that the savings account is at a financial institution separate from your checking account. I like to use an online bank, such as ING Direct, to move money out of site and out of mind. You’ve heard of the expression “pay yourself first” when it comes to savings – not a bad idea for 2009, right?
Once you put a plan in place, monitor it on a quarterly basis to see if your goals are on track. Modify your plan as needed and avoid the temptation to withdraw funds for anything other than what you have in mind.
Saving money takes discipline, but it is the best way for you to reach your goals in a timely and sensible manner.
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