This is posted on a daily basis: "My income is 3k, my expenses are 2k, I can't seem to save money, send help."
If your income is 3k and expenses are (truly) 2k, then at the end of the month you have 1k left over which you can use for savings. This isn't really higher mathematics. The issue here is that when people list their income and expenses, they usually list the ones that are easy to track. Income is usually the same every month, so that's easy. Groceries, car payments, gas, insurance etc are monthly recurring costs so those are easy as well.
But what about clothing? What about simple home appliances? Gifts? It makes no sense from a financial point of view that people are listing small monthly expenses such as Netflix, but not clothing, which, on a yearly basis, will easily cost you 5 times as much. The problem is that those costs are non-monthly costs.
What has helped me to be able to put away long term savings, is to make a yearly budget. A yearly budget will allow you to not just budget the monthly costs but also the non-monthly ones. This way, my savings are my actual savings and are not used to finance unbudgeted non-monthly expenses.
Look at the corporate world. Companies don't start with monthly budgets but with yearly ones. This is where they put most thought in. They do afterwards plan individual months to avoid short term cashflow issues, and so should you, but the starting point is always the yearly budget.
So these would be my recommendations for the people who are saving $500 a month but are left with $0 on their savings account at the end of the year:
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Make a yearly budget. This means that you work with the same categories, but you also split this in 12 months. In some months, you might plan to purchase new clothing (eg right before winter and right before summer). In other months, you budget a yearly holiday. What you save for the long term comes after those non-monthly expenses.
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Perform monthly actual vs budget exercises by comparing what you budgeted and what you actually spent. Based on that you can adjust your budget for the next months.
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Bank account at beginning of month + income - expenses* = Bank account at end of month. If this is not the case, you probably forgot to add some expenses. If you use a spreadsheet like I do, the number in your spreadsheet should always match with your actual bank account. Otherwise you are working with money that doesn't exist. (*cash based, not accrual)
You are the CFO of your own life/family and you should act like it!
Submitted September 19, 2017 at 04:46AM by Goodman1988 http://ift.tt/2yn47wi
