Savings as an Expense – The Right Money Mindset
I realized this week – I’ve been thinking things all wrong. Get a handle on my money THEN have an emergency fund. I need to take on the mindset of building my savings right along with sticking with my budget. Working on my debt AND building up my emergency fund. My savings – A bill I NEED to pay regularly because without it, I will face dire consequences. I’m living proof because I did not have an emergency fund when I lost my job requiring relocation to start working again AND car repairs. Ugh!
Here’s a smart article by Darrell Victor. Tell me what YOU think!
Savings as an Expense – Treating savings as an expense seems like conventional wisdom. Many people don’t seem to be doing that. That is possibly the main reason why saving income is so difficult for most people. The dominant strategy for those who are financially challenged seems to be that they’ll save a fraction of any spare cash that happens to crosses their part.
The saving problems occur because there never seems to be spare cash. If you are having problems saving, you should check your money management skills, attitude towards saving and consumption patterns.
Sometimes we fail to separate needs and wants properly. A want is simply a manifestation of a particular need. What you want should be determined by your ability to afford the desired object or service. What you need is certainly a more nebulous issue. An acquaintance of mine was telling me that she was struggling to meet her monthly bills. She was struggling to maintain “necessities” like cable, internet and her new post-paid phone. In my acquaintance’s situation those didn’t seem absolutely necessary, at least not enough to live from paycheck to paycheck. Her inability to sacrifice was the crux of her financial struggles. Before you purchase a product or service, it may help to ask yourself the right questions.
Can I afford it without putting myself in debt? How soon would I be able to replace the money I’m willing to spend now? Would it be better to purchase it when I improve my savings?
We tend to save after the spending spree instead of before it. This is the complete reversal of the idea of treating savings as an expense. If we viewed savings as an expense we’ll pay it just as we pay our bills. For those who are apparently obligated by contract to spend everything they earn, it would be wise to make a portion of your earnings disappear before it becomes available on your debit card or in your hand.
Deduction orders are the life savers here. The thinking of someone who has less money to spend initially is surely different from someone who uses the license to spend first. The person who saves would feel as though they’re poorer because they have less money to spend. The other individual would do like a friend of mine and keep cash in hand for “any emergencies” that arise but with the intention to save if they didn’t. Sure enough, the emergency arises in terms of the latest sneakers at Footlocker. The better approach would be not to leave much temptation in your wallet.
Buy now, pay later is great news for the capitalist and a money grave for the delinquent consumer. If you really cannot afford to make a significant down payment on the car you desire, you may have to defer the purchase. Save for it. If you cannot afford everything you want comfortably now, that should be an additional reason to save more now and not spend your entire salary. It really hurts when people do this.
I know a person who wanted to purchase a new car and also purchase a house. The salary was barely enough to support either. She chose the car of course, even though commuting otherwise would have been a minor inconvenience. Her preference for a depreciating asset demonstrated her financial savvy. When people purchase a vehicle they purchase convenience, among other things. If convenience if the main contributor to the value (not price) of the vehicle, then you should question whether the convenience factor is due compensation for the financial outlay.
Everyone can save. If you know you haven’t the discipline, there are ways that you can impose that discipline on yourself automatically thanks to the aforementioned deduction orders and banker’s orders. The first step is to ensure that you have a minimum savings target that should be at least ten percent of your salary. If this seems high, then you’re in a terrible position, because that’s the minimum annual outlay for retirement savings alone.
Ensure that you have a healthy emergency fund. Recognize that if you have protection products, particularly medical and critical illness coverage, you wouldn’t need to have a huge reserve for medical emergencies and you can divert that fund for unexpected financial expenses and increased savings. Your emergency fund should be divided between a savings account and money market fund. The ratio would depend on your circumstances. Treat savings as a necessity, as an expense even and start saving today.
Darrell Victor is a financial services sales professional who specializes in retirement planning.
Tags: bills, budget, debt, emergency fund, feature, handling money, money, savings
