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Saving as a Prudent Habit

Yes, saving is considered a good thing. But why? Why should we save? When we’re busy pursuing careers (i.e. money), we rarely stop to think that one day we may not be physically or mentally able to work. We live for today.

The writers over at A Personal Finance Guide have something to say about this quandry too:

“Saving should be inculcated as a habit from early on so that when you are no longer getting a fixed paycheck every month, you are not financially dependent on some one else. It is important to start early so that you can build a sufficient corpus by the time you retire.”

So what do we need to save for?

“…emergencies like an unforeseen surgery. At least, three to six months of salary should be kept aside to tackle contingencies…our children’s education and also for out retirement. We need to save for sinking funds like car maintenance or house repairs.”

Does retirement exempt us from those financial emergencies that seem to crop up at the most in-opportune times in our current, daily lives? No. Not at all.

How much do we save? Estimates start at 10% of income and go up from there. Of course, the further along you are in career and age will dictate how much you need to save. Either way, today is the day to start.

“Money is synonymous with power. It will grow quickly with systematic saving and prudent investing. The time to act is now!”

Read the rest of the article on A Personal Finance Guide.

What Makes a Good Budget?

Are there specific actions you can take to make sure your budget is solid? Is there even such a thing as a good budget? According to Deborah Fowles, former guide at the financial planning section,

“In all the the budget bloopers and and blunders I’ve seen, the same few problems keep rearing their ugly heads.”

With that, Deborah provides the top ten most important features of a successful budget. A few of those features include:

1. Categories that fit your personal situation and your spending habits, not somebody else’s.

2. Enough categories to give you a meaningful picture of where your money goes and where you might be able to cut costs, but not so much detail that tracking is a chore that you’ll soon tire of.

I’ve written about these exact points before. If your budget is too detailed, you’ll spend way more time than you need only to quit in frustration. And why stick to a category because someone else suggests it? Use categories that make sense for you.

And the most important feature in my opinion,

“Realistic written goals. Budgeting isn’t about tracking your costs, it’s about setting financial goals (saving for a downpayment on a house, buying a new car, getting out of debt, saving for retirement, putting your kids through college, traveling, etc.) and finding ways to meet them. Without goals, your budget is just a pair of handcuffs.”

Budgeting is a goal setting and achieving exercise not, as many assume, an arbitrary spending restraint system. It’s only restraining in that you’re funneling your spending (and foregoing something in the short term) in order to fund a long term goal. A very satisfying exercise indeed.

Read the rest of Deborah’s article.

One Page Guide To Personal Finance

Everything you ever really needed to know about personal finance on just one page:

Read the original source document on TheSimpleDollar.

Coupon Booklet – Pay Yourself First

Do you have a coupon booklet for your mortgage? What about your vehicle? Bad piece of furniture you bought three years ago and threw away last year? It’s about time you create your own coupon booklet(s) to pay yourself first. A savvy coupon “bookleter” shows you how it’s done here:

This is a great psychological motivator to keep you humming along your with your savings.

Change Your Thinking – Lower Your Expenses

So you think you’ve lowered your expenses as much as you can? What if you could lower your expenses just by changing how you think? RJ Weiss from GenYWealth, in a guest post on FreeMoneyFinance, gives two “mind hacks” you can use to lower your expenses.

The first is to apply the “reverse 4% withdrawal rate” to your estimate retirement assets:

“For every $10,000 less you spend each year, is $250,000 less you need to accumulate to retire. If you can manage to get your expenses down to $40,000 a year, you only need $1,000,000 in a retirement portfolio. Could you live on $30,000 a year? Then you only need to save $750,000.

If you know your annual expenses, try doing a simple calculation. Take your annual expenses and divide them by .04. This is roughly (a lot more goes into this calculation) the number you will need to accumulate in your retirement portfolio, to maintain your current standard of living.

So, instead of trying to accumulate as much investment cash as possible now, try reducing expenses now. The less you can live on today, the less you’ll be able to live on later in life. This certainly isn’t advocating a pauper’s life but rather a more realistic and fulfilling life.

The second “mind hack” is to start thinking of expenses in terms of your life. The example given is in terms of a $400 car loan (which most of us can relate to) for someone who makes $30,000 per year. The car loan to salary ratio is 16%:

“What if instead of comparing the ratio between payment (car payment) and monthly income and calling it a day, you took that 16% and multiplied it by 240, the average amount of workdays in a year.

What does this number represent? It shows you how many days a year you’re working for your car. In the example above, you would be working 38 days a year or about all of January and February, just for your car.

Amazing the difference especially when most of us start with the typical “how much can I afford?” type questions. We should instead be asking, “how much of my life am I willing to give in order to have this…thing?”

What about you, have you been able to change your  thinking in a way that has impacted your finances?

Read the rest of the article on FreeMoneyFinance.

Pay for a Wedding – with Cans?

Andrea and Peter wanted a nice, modest wedding for their 150 person guest list. Nothing grand. In fact, their $3,800 budget was light years below the $19,581 average wedding cost for U.S. couples. How did they pay for it? With cans of course:

“From the start, we knew we wanted a simple wedding, an event that was more a celebration of the friends and family that made us who we are and are a part of our lives. Basically, get an awesome space large enough to hold everyone, and have a party — with a small ceremony held somewhere in the middle of it all”, Andrea said.

So they decided to raise the money by recycling aluminum cans—400,000 of them. What prompted them to go the frugal route when so many couples seem to have budgets that are bursting at the seams?

“When we started the project, it was the budget friendliness. I just got a job after 10 months of unemployment, we had just purchased a house a few months before I got laid off, and in general live pretty frugally. The prospect of dropping even $3,000 to $4,000 on a wedding just hurt.”

They were already living a frugal and environmentally friendly lifestyle so adding the can collecting to their already full schedule wasn’t a stretch.

They’ll say their “I dos” July 31 in Spokane, Wash., with their goal met, thanks to a little help from their friends, 1,487 Facebook fans, 247 Twitter followers, a blog and a worldwide media blitz. True budget snobs indeed.

Read the full story at MSN Money Central.

How to Save Up for Anything

Anything? Yes, you can save up for anything. Follow these steps.

Prioritize. Prioritize. Ever get the feeling that, even though you made it through another dizzying, chaotic day at the office, you can’t remember accomplishing anything? That’s called a lack of prioritization. The same happens with money. If you don’t have a plan (i.e. a priority) for it, somehow it manages to get spent on whatever happens to be a priority at the moment.

How to prioritize? Setup a savings account and automatically transfer money to it each month. Trust me. Automation = happiness.
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4 Budget Tactics to Save More and Spend Better

I write a lot about setting spending and savings goals. A big reason why is because most of us go through life on cruise control. Sure we can come up with all varieties of dreams but do we really plan to reach them? Or, even better, how do we know if we’re achieving them? We don’t. Not unless we make spending and saving a priority.

Next up are 4 budgeting tactics that will help you save more and spend more wisely.
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Family Budget Spreadsheet

Found this simple family budget spreadsheet from WiseBread:

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