The secret to saving is to take out the amount to be saved first, as soon as you are paid. This amount should not be touched for any other purpose except saving, and possibly investment. It has to be deducted first because if it is deducted last, in general, you will find that nothing is left. This money saved should be put into a separate savings account – preferably one where the money cannot be easily withdrawn.
It means that whatever you have left (after taking the set amount out) must be budgeted to live on. Sooner or later your weekly expenses will adjust down to the amount you have left. The upside is that while this is happening, your savings account will grow and you will be able to look at investment. This will help you create extra income (if done wisely).
If you are already in debt, you need to allocate a certain portion of your earnings to your debts every week. Follow the same principle of taking the money out first, so that your creditors are slowly reducing, week by week. In a similar fashion, you will find that your debt will slowly decrease and you will have automatically readjusted your living costs to meet the amount you have left over for yourself.
For serious savings - sit down and make a written plan. It doesn’t have to be a complicated exercise - a simple plan will work. To complete the plan, four steps are necessary:
1. Add up your total income, including any funds you receive from any other sources on top of your normal wages.
2. Calculate your total fixed expenses such as rent, insurance and car payments etc that need to be paid every month, regardless.
3. Estimate how much you need for day to day living expenses and make sure that this cost is a tight cost, yet workable. That is, make sure it is realistic but it shouldn’t allow you room for any extras you do not need.
4. Look at what you have over as a balance and allocate an amount to regular savings which you cannot touch. If you have spare funds, allocate a small amount to another account to meet emergencies that may come up. These are emergencies you haven’t planned for in your other estimates (in number 3 above).
You need to do a little bit of adjusting and balancing of the figures until you reach a plan that you believe is workable, achievable and satisfactory. Once you go through each step and write everything down on paper, you will see clearly where your money comes from and where your money goes.
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