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Looking for Extra Savings? Start with a Budget |
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Investing a few hours to create and maintain a household budget may be the key to identifying opportunities to save more for the future, including for long-term goals such as retirement. Yet it's surprising how few households take the time to commit to a budget. Many financial experts recommend making time for this task, which could pay dividends down the road.
Get a Grip on Your Money
More than half of working Americans have accumulated less than $25,000 in savings and investments, excluding home equity and retirement accounts. 1 Finding the extra money to save is not always easy.
The good news is that many families realize they spend money on nonessentials -- such as eating out and specialty coffees. These are expenses that can often be reduced with the aid of a budget. A budget may also help you reduce large expenses to make room for savings. For example, if your transportation costs are considerable because of a long commute to work, look into carpooling with a colleague or working at home periodically.
Budget Basics
The first step is to understand and summarize your various sources of income, which may include earnings from a job, alimony, real estate income, and income or dividends from investments. Next, determine how you spend your money. Start by tracking your spending for a month. Gather bills and receipts and don't forget things like an occasional splurge on new shoes or a cup of coffee.
You may want to group expenses into the following categories:
- Fixed committed expenses, such as mortgage, loan, and insurance payments that are the same from month to month.
- Other committed expenses, which are things you can't live without, such as food and clothing.
- Luxury expenses, which are things you like but don't necessarily need.
You can tally your income and expenses in writing if you prefer. Or consider trying one of the many online budgeting programs to help get you started.
At the end of each month, see how your actual spending stacks up against your budget and how much income is left over. When looking for places to cut additional costs, start with luxury expenses, followed by other committed expenses.
Budgeting will initially require some extra work and organization. But a little extra effort now can go a long way toward helping you pursue your financial goals.
1 Source: 2010 Retirement Confidence Survey, Employee Benefit Research Institute, March 2010.
© 2010 Standard & Poor's Financial Communications. All rights reserved.
©2010, Kelly Ruggles, Spokane, WA. Web site
Kelly C. Ruggles, Spokane, WA. is a fee-based financial planner located in Spokane.
Kelly C. Ruggles, Spokane, WA. President of American Reliance Group, Inc., a registered investment advisor.
Kelly Ruggles, Spokane, WA. is the author of "The Financial Playbook" for Retirement
Kelly C. Ruggles, Spokane, WA. Does not intend to provide personalized investment advice through this publication and does not represent the strategies or services discussed are suitable for any investor. Investors should consult with their financial advisors prior to making any investment decisions.
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