Many people think that because they are not earning very much, they can't save anything. Well, it's not true! Regular savings, regardless of how much is put aside, not only create good money management habits but are also the only way to meet your short, medium and long term goals.
Of course, lump sum payments do come along for some lucky people, and even then, that payment often already has a home to go to such as a payment for a bill or a debt. Reality is that a healthy financial life is not easy. To be financially sound can take time, dedication and a budget.
List Short Term Expenses and Bills
Short term expenses include bills and items that need to be paid for within the next 12 months. Some examples might include birthday presents, car expenses, clothes, shoes, children's activities, utility bills, Christmas presents, and even weekends away. By saving small amounts for these things each pay, spending will remain more within the means of earnings rather than resorting to credit card debt.
It is easier to keep each type of expense in a separate account although with mounting bank fees this may be difficult. Often, other types of banks, credit unions and friendly societies offer fee-free accounts and with the use of the internet, transfers are easily managed whilst restricting everyday access to the savings accounts.
Identify Medium Term Expenses
Medium term expenses include larger ticket items or holidays which may incur outlays at least 12 months away but within the next 1-5 years. Some examples may include purchasing a car, saving for a deposit for a home loan, or perhaps saving for an overseas holiday.
Once the balance of the account is more than $1,000 there are savings accounts available which earn more interest than regular transaction accounts. Alternatively, other types of investment accounts may be appropriate for consideration such as funds management accounts or direct investment in shares, for example.
Identify Long Term Savings Goals
Long term savings goals include long term savings plans which prepare investors for a retirement nest egg or may simply be goals for extended holidays which could occur at least 10 years away. For example, 40-year-old couples may start saving for a round the world trip to celebrate their 50th birthdays or even to celebrate their retirement.
To plan for a $30,000 holiday 10 years away means that just $215 per month needs to be saved if the yield is 3%. Most people have superannuation funds but it is also important to have some long term savings plans outside of superannuation.
For example, if $100 is saved each month for 40 years, which is how long the usual working life is, $73,000 will have accumulated even if just 2% interest rate is paid on that account. Imagine the result if the regular savings was invested in a higher yielding product over that time period!
So with careful planning, anyone can work towards good money management.
Budget for everything. Even the irregular haircut! Know how much is available to spend at any one time and stick to the budget. Stuff the latest trends - who cares! Be an individual. Furthermore, the kids will survive without the latest technology and so will their friends.
Remember, putting just $5 into a child's bank account every week from their first week of birth will provide them with over $5,000 at their 18th birthday. That's more than enough to buy their first car and give them some independence.
So good luck, stop relying on those credit cards and if necessary consider a credit card debt management strategy.
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