Understanding systematic savings
You’ve maybe heard this advice frequently but never has the chance put it into practice:
Look at your monthly income; then carve a portion of your income out to earmark it for savings.
Your savings should be physically placed in a different place (so you will not be tempted to dip into the earmarked money, even just a little, for an extra something you have been wanting to buy). And only after you have subtracted it and put the money elsewhere, you can find out how much money you currently have for all your other expenditures. After you have put aside your saving money and you find that can’t pay all of your monthly bills, then you should change something - like finding cheaper mortgage, eat at home more frequently, or rent fewer DVDs. The choice is entirely yours. The only thing that isn’t on your negotiating table is the savings amount.
You can effectively save if you allocate a fixed or a progressively larger amount of money into your savings account each week or month (depending upon when you receive your income).
Other than their normal monthly income, which is paid at regular intervals, many people also have regular injections of extra money. This extra cash can come from inheritances and/or gifts, holiday bonuses, substantial salary increases, overtime wages, or maybe income tax refunds. A lot of people also use more withholdings on their income as a method to save money.
If you have been doing your work and dissecting your household budget, you’ve probably already found how to live nicely on what you make on a regular basis. Hopefully, you are also now saving regularly and systematically. So what you need to do when a small amount of extra money comes your way? Certainly, to smart money managers, the answer is simple. Save, save, and save. You have figured out how to live comfortably without it, and you shouldn’t miss it, so put the extra money in a safer place and just forget about it!
Ah, but kitchen remodels, jewelry, or vacations are dancing wildly through your head. Clearly, if your household budget has not included money for those glaring needs (perhaps your roof is already leaking) and you have just been waiting for a little extra cash to fund those projects, you can allocate at least a portion of that money for those purposes. But if you can pare your expenditures to a point at which you are managing nicely with what you currently have, take a huge chunk of your extra money and immediately sock it into the savings plans. What is out of sight will also out of mind, and those additional funds may be just your ticket to strengthen a somewhat anemic retirement account or college savings.
tags: personal finance, systematic savings, understand
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