Wednesday, August 3, 2011

The Importance of Saving and Budgeting

Most people underestimate the freedom that being diligent and saving can provide. Besides building an Emergency Fund (which is important for obvious reasons; and for those that don’t realize how important having an Emergency Fund is really need to pay attention), saving for particular life events such as weddings, vacations, new cars makes doing these things that much easier. The money for the item or occasion is already there, no need to scrape to get the money or take from something higher up on the priority hierarchy.


Most financial people advise to “pay yourself first” but in reality bills should come first because if you don’t pay yourself that month you won’t be punished. Having a budget helps with saving and allocating money for needs, wants, and want to needs and is very important in the overall success of your finances. Once the financial situation is more stable, sure, “pay yourself first” because you have put in the work to make sure your needs are met and most likely have found “extra money” hidden in your spending.


Once the “extra money” is found and allocated, then the best way to save is to set automatic deposits into a high yielding savings account and forget it. You won’t miss the money because you just found that you have it. Until then, saving is based on what is left after the other needs are met. It’s unrealistic to sit down make ONE budget and expect it to work the first, second, third…. time so that all the needs are met and money magically starts to appear in your savings account(s). It takes change on our part.

For people living pay check to pay check budgeting and saving is even more important because there is less money to spread around and being wasteful in any area can lead to a major financial nightmare down the road. The whole point of saving is to prepare for something in the future. It can be a short or long term goal, but you are prepared.

One nemesis of budgets and savings is the need for instant gratification. Every day we are told we can have whatever we want, instantly. Of course we believe it (after all advertisers wouldn’t lie to us just to get us to buy something would they?) and we want what we want, RIGHT NOW! Waiting isn’t something we can do automatically. One way to train yourself to be patient is to set a goal to save for the item. If you have the money but aren’t sure if the item is a want, need, or want to need then take 24-48 hours to really think “do I need to spend $500 for this, when I can use that $500 to pay off my debts that much faster?” Basically, think over the decision and why you MUST have it right now.

Getting on track financially is more than just changing your spending habits – it takes a lifestyle and mindset change. One can’t have the same values as when they were overspending and expect to be successful financially. I stress this to my clients each time we meet because this whole process can be very frustrating and we all may want to give up but we will never get to the point we desire financially.

Don’t give up. Don’t let frustration take your dreams away. Don’t think you are the only one.

Be persistent through the struggles. Be pro-active. Be determined.

And when that doesn’t work PF4TP is here to offer support, advice, tips, and stories of our own….

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