Would you like to become your very own saving money expert?
Well before you start saving money, you need to become very familiar with where your finances are going. Your income and expenses must be recorded and written down in a spread sheet (or just with pen and paper) so you can see exactly where your hard earned money is going.
By completing this exercise, you, like most people will become shocked on what you actually spend your money on and how much you are putting away for your savings account. This helps you to determine what areas you need to cut back on or increase, and how your finances are going – whether they are healthy or unhealthy.
By knowing where your money is going, you can make more informed decision about future purchases and how much you can afford to spend on certain items. People seem to spend less money when they are aware of where their money is going and they can track their spending and make more informed decision.
To help you categorize and track where your money goes, what follows below is a general rule of thumb for what you should be spending as a percentage of your income on. These are the main categories and should be used as a guide only. But it works.
35% – Housing — You should be spending no more than 35% of your net income on housing. This includes mortgage or rent, utilities, insurance, taxes and home maintenance.
20% – Transportation — Spend no more than 20% or less of your net income on transportation. Transportation includes car payments, auto insurance, tag or license, maintenance, gasoline and parking.
15% – Debt — 15% of your net income should be spent on all consumer debt: Such as student loans, retail installments contracts, credit cards, personal loans, tax debts and medical debts.
20% – Other – No more than 20% of net income should be spent on all other expenses: food, clothing, entertainment, child care, and medical expenses.
10% – Savings – The most important one. Save at least 10% of all your income throughout your working life.
By following these simple and easy to implement rules, a budget can be formulated and broken down into each category and each individual area allocating an actual amount to each one.
The last category is the most important part of the savings plan. This will become your main goal and you must stick to it. By working through and developing your budget, 10% of your income must be set aside into a savings account. If, after you have established your budget and find that you can only put in 6%, then go back over your budget, and cut back on some areas that are not essential to living to make up the extra money required to get 10% savings.
Remember, when you have a budget and have your finances organized, you actually become much more aware of what you are spending your money on and will become very surprised to realise that you may even be spending less than you were before you did your budget. When this happens, don’t to tempted to go out and spend your savings. This is when the real test comes, as these savings will become your wealth nest, which will be discussed in future articles.
Jason has been involved in the finance industry for over 10 years and is a leading expert in saving money. He has developed an extensive knowledge which he shares in his website Your Money Saving Expert. It teaches people how to save money, complete guide to saving money, budget planner and the tips to saving money and how to become a money saving expert. Read more about saving money at: