Everyone knows they should be saving money, but shockingly few actually do it. The most common excuse for not saving (or not saving enough) is that one just does not have enough money left over at the end of the month.
A little while ago, I wrote about budgeting. One critical item every healthy budget should have is “savings”. As mentioned in the previous post, your fixed expenses are the first ones you need to include in your budget. This is because you can’t change them–no matter what else comes up during that month, your rent will not go away. I would strongly suggest that following your fixed expenses, the next thing you should put in your budget is savings. This should be the highest priority of all your variable expenses.
When budgeting for saving, the ideal amount would be 10% of your income. Most people are not willing to allocate such a large chunk of their pay cheque to savings, so I use 10% as a flexible rule. In reality, any amount is better than nothing. The key is to set aside something you can maintain from month to month. It completely defeats the purpose if you save 10% one month and then fail to save in the following couple of months. It would be better in the long run to budget to save 5% consistently than to haphazardly stash away 10% whenever it is convenient.
There are different ways to set aside your savings. You can have a regular savings account, an emergency fund, registered retirement savings, or other options. I’ll address these in further detail in a future post.
It’s difficult to build up a nice nest egg. Like any other part of your budget, it may require sacrifice to make it fit. But it is well worth it. Plan to save, write it down, and commit to the discipline, and you are well on your way to financial success.
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