If you need to develop a savings account but don’t know how you’ll find the spare money, then you may need to look at your household budget. With a proper budget established, you’ll have enough money for your fixed monthly expenses and for your savings account. It’s very important to have a savings account. It’s recommended that you build up at least 3 months of your monthly income in your savings. That way if you have a financial emergency or lose your income, you won’t be too put out.
If you don’t have a budget or a savings account, there is a little bit of preparation that you need to do in order to get things in line. In three easy steps, you can create a workable budget for your home that will allow you to build a savings account and better prepare yourself and your family for unforeseen future financial hurdles as they arise.
1.Find out how much you are really spending – In order to create a workable budget, you need to be accurate with your figures. Many people spend more money then they think that they do, so when it comes time to stick to a budget, they find it difficult.
There are two kinds of expenses that go into your budget: fixed expenses and flexible expenses. Your fixed expenses are the monthly payments that you make like your mortgage payment and your car payment. Your flexible expenses fluctuate from month to month. This can be money spent on groceries, gas, entertainment or other expenses that you don’t have a fixed payment for.
The biggest problem people have in setting a budget is not knowing how much they are realistically spending on their flexible expenses. The best thing to do if you are unsure of how much you are spending is to track your spending for a few months. Write down all of your expenses for a two to three month period. Then you can get an average of your flexible expenses that you can work into your budget.
2. Determine your income to expense ratio – After you’ve figured out your fixed expenses and your average flexible expenses, you will know how much you’ll need to spend each month. Compare this to your monthly income to see what your income to expense ratio is. For example, if you make $3,000 per month and know that you have expenses of $2,000 each month, then you have $1,000 per month that you can use to budget for savings. You can also use these funds to pay down debts.
3. Develop a savings plan – Once you find out how much you can reasonably spend each month on savings or paying down debt, then it’s time to develop a spending plan. You should save at least 3 months of your monthly income. In our example case, that would be $9,000. In order to reach that goal, make it a point to save $500 per month. You’ll need to save for at least 18 months in order to reach you goal.
You could conceivably save $1,000 per month for 9 months, but you need to use the remainder of your extra money each month to pay down outstanding debts. The most important thing you must do after developing these plans is to follow through. By following up on your plans, you’ll put yourself on secure financial footing.