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How to start savings

CarleeMcCullough-160Many people live paycheck to paycheck. This means that there is no savings and most of the previous check is gone before the next check is received. The goal of most should be to save as much as possible for a rainy day. However, saving eludes most people because folks buy today and figure out how to pay for it later. Unfortunately later comes faster than many expected. Understanding how to start the saving process is the first step to establishing and growing savings.

Create a budget

The first step is to create a budget. The budget will help identify all of the bills that have to be paid monthly and the associated income available to do so. Determine if there is enough income to pay the bills with anything left over. Then evaluate the bills and expenses to see if there are any that can be eliminated immediately and not have an ongoing expense. If so, eliminate those bills. Now calculate what we have left over that can be earmarked for savings or debt reduction.

After documenting your income and expenses, evaluate to see if there are any places where the income can be increased or the expenses decreased. Be sure to include all of the little purchases as well including coffee, gas and fast food. This allows you to fully identify where every cent is spent in order to ascertain the potential cutbacks.

Emergency fund

Prior to paying off any debts, an emergency fund should be established just in case something happens to the regular income. The emergency fund should equal enough money to live on for three to six months.

Pay off your debt first

Begin the process by calculating the total amount of your debt. If possible do not pay the minimum on the account. Pay more than the minimum balance to expedite the payoff. The quicker the debts are paid off, the less in interest payments are paid as well. When the debts are paid in full, the money can then continue to be placed into a separate account for savings.

Set goals

Label the goals as short term and long term. Examples of short-term goals would be saving to purchase smaller items such as furniture, clothes, or a down payment for a house. Long-term goals would be saving enough for retirement, pay off the mortgage on a home, etc. Attach an attainable date to accomplish the goals. Determine how much to save per week, month or paycheck to accomplish the established goal by the date set and go for it.

Determine the level of sacrifice

The savings goal and level of income will determine how much sacrifice will be required to achieve the goal. How important is accomplishment of the goal? Is it high enough on the priority list to downsize living accommodations, to stop shopping in the malls or on the Internet, to go without a landline telephone, to forgo cable, to limit dining out, or to use coupons? All of these options are available and it just depends on the level of commitment to the goal the individual is willing to invest in savings.

Eliminate credit cards

During the savings process, credit cards are not your friend. The interest rates on credit cards outweigh any interest revenue that can be made on a savings account. Therefore, remove credit cards from your reach and forget they are even accessible. Cash is now king in the process. Use cash for everything possible. By using cash, it is easier to monitor that the funds are running low because there is a visual.

Open the savings account

The funds that are identified as savings should not be commingled with operating funds and other fund that used for regular spending. Try to obtain the form of savings account with the highest interest available. This may entail regular savings accounts, certificates of deposits, and money market accounts. Allocate an amount that will go to savings regularly. Starting with 10 percent is a good guide. If it is good enough for church it should be good enough for you. So every paycheck try to put aside 10 percent for savings and forget that it is there. It will start to accumulate faster than expected.

Retirement savings

If your employer has any type of savings plan like a 401K plan, invest immediately at the maximum level available. Retirement has a way of sneaking up on folks that are not prepared. The earlier participation begins in a retirement savings plan the less you miss the funds that are earmarked for it.

Do not give up

Life happens and occasionally the savings may need to be used. Do not get discouraged just get back on track and keep saving. Just do not use the savings for frivolous items. Remember we are ON OUR WAY TO WEALTHY.

(Contact Carlee McCullough, Esq., at 5308 Cottonwood Road, Suite 1A, Memphis, TN 38118, or email her at This email address is being protected from spambots. You need JavaScript enabled to view it. .)

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