The Path to Savings

For most, having a budget is not a shocking approach to keeping track of your spending. What is shocking, though, is how many people don't use one. According to a 2013 Gallup poll, only 32% of 1,012 randomly selected Americans throughout the United States track their spending.

That's a one to three ratio in favor of Americans who don't track their finances. That means that, conceivably, millions of Americans don't plan ahead to ensure their bills and basic needs are covered.

Why are people so averse to having a budget? Is it because they feel restricted by it? Will creating a financial plan force us to have undesirable conversations with our significant others? Maybe the whole process of monitoring spending is just boring and tedious? In any case, one thing is clear: almost 70% of us don't do it, and this leads to disastrous results.

Let's talk about what happens when you don't budget. It inevitably leads to at least one situation where you miss a bill, need to borrow money from a friend or family member, or prevent us from rebuilding our credit after we fall into debt.

Mending the Financial Fabric

Mending the Financial Fabric

It's time to break the cycle that leads so many of us down the road to financial disaster. And this is how you do it. First, start by adding up all of your monthly bills and due dates. Subtract that from how much you make monthly, and what remains is what you have left over to spend and save. Of that amount, determine what you spend on transportation, food and entertainment. There's your base budget. Is there anything left over after that? If not, you will need to see where you can cut back. This is where it might get tricky for you.

  • Make sure you have the right amount of funds to pay bills by their due dates. Having the right cash flow is the best way to ensure that you have all of the money that is needed to pay your bills on time. The best way to approach this is by making sure that you at least have all of your money needed for next month's budget by the end of the month before.
  • You need to have an emergency fund. Warning: what I am about to tell you may overwhelm you. You should have six months worth of funds saved up just in case you have a medical emergency, your car breaks down or you lose your job. I know exactly what you're thinking right now: how in the world do I save up that much money? Well, obviously, it's going to take time - that's why you need to start now.
  • Save as much as you reasonably can. Don't try and go "cold turkey" - this path of "saving" usually leads to blowing whatever you had saved up on a big ticket item or a multitude of small items. I know, because this has happened to me: I denied myself any sort of fun, and when I saw how much I had in my bank account, I immediately splurged; instantly wasting all of the hard earned savings I had spent months acquiring.
  • Document what you are spending your money on. By keeping track of how you are spending your money, it allows you to evaluate what you've spent your money on. After close examination, you may realize that you spend a lot more than you thought on eating out or going to the bar. Now you can use that figure to compare against how much it would cost to prepare meals at home.

What matters is that you are taking some steps towards saving money. Start with a small amount of $200 per month. Once this amount builds, it might just motivate you to set aside even more and spend less. It also could make you more frugal and get you to become wiser with your spending.

How Should I Break It Down?

Here's an example: Joe is a single man who makes $35,000 a year and pays all of his appropriate taxes. This leaves him with a take home pay of $571.25 per week, which amounts to a monthly total of $2285.00.

Take Home Pay Per Month (Net)
Car Insurance

After his bills are paid, Joe has roughly a little over 50% of his income remaining, and after his additional expenditures, he is left with enough money to put aside $228 into savings.

Money Available After Bills
Household Supplies
Money left for recreation
Savings (10% of monthly earnings)

Of course, in the example above, Joe doesn't have a car payment. That's because right now, Joe is driving around in a car that is paid off. Unfortunately, he's probably going to need a new car soon, which means that he will need to trim some expenses somewhere in his budget. Can you see where his areas of opportunity are?

If you said that he could reduce his grocery amount as well as his recreational funds, you would be correct. In fact, if you want to go even further, Joe could possibly reduce the amount he spends in supplies as well.

If he reduces his grocery amount to $250.00, his recreational funds to $100 and supplies to $80, he will create a surplus of $276.50 that could go towards a car payment, without touching his 10% for savings.

Something Is Better Than Nothing

While $228 dollars doesn't seem like much, as long as Joe keeps saving, his emergency fund will grow. After one year, he will have $2,736 saved up. If he invests part of that wisely, such as a using a portion of that to start an Individual Retirement Account (IRA), he could noticeably increase his savings potential.

If you are currently turning over a new leaf in your personal money management, but are still recovering from past mistakes, Auto Credit Express is here to help you find the dealers and lenders who specialize in bad credit auto financing. Get started now by filling out our easy as 1-2-3 online application!