It does not matter whether you are just starting out in your first job or have been in the work place a while, the only way to save money is not to spend all your income. Let me say that again, the only way to save money is not to spend all your income. Pretty obvious, right?
In my almost 30 years of providing professional advice, this seems to be a concept that many people find difficult to understand. When I ask a prospective client how much they spend or if they have a budget, I frequently get a proverbial deer in the headlight look which I take as they don’t have a clue. Unless you make so much money you don’t have to worry about your financial security, you need to have more than a clue. You need a budget.
Budgeting 101 – There are two components to a budget; income and expenses. Income primarily means what you keep from your paycheck after taxes. Expenses are what you spend your money on (food, clothes, transportation, insurance, rent, fun, debt, gifts, mortgage, loans, etc.). What is left over is the money available to save for your goals. Most people cannot control their income as easily as their expenses. Key – You must always spend less than you earn to save money. That means you will have to track all expenses carefully and figure out what you spend your money on. Find the way to track them that works best for you. Programs like Mint.com are handy if you use a smart phone or computer. Going through your checkbook or credit card statement monthly can also be helpful. Whatever method you choose, make sure you follow through and put all of your expenses down.
If you are spending all of your income, you must figure out where money can be saved. Some expense areas that you may be able to reduce include eating out less, sharing transportation costs, reducing your insurance costs, buying fewer clothes, refinancing debt, spending less on gifts and stopping smoking (if you still do). Other more drastic changes could include moving to a different apartment or house, changing employment due to location or opportunity or perhaps changing your vehicle to have a lower monthly payment and lower insurance costs.
Will changing your spending habits or lifestyle be easy? Absolutely not, but it is essential in order to build financial security. Once you have a balanced budget, then you can focus on saving and investing which will be discussed in an upcoming blog.
The author of this article, George S. Urist, MBA, CFP® is President and Owner of Urist Financial and Retirement Planning, Inc., located in East Syracuse, New York. George Urist has been a CERTIFIED FINANCIAL PLANNER™ practitioner and Registered Representative with LPL Financial for over 24 years. George can be followed on twitter @gurist and can be reached at 315-445-2147 or at email@example.com. Securities and Advisory Services offered through LPL Financial. Member FINRA/SIPC.