Step-by-step Guide on Saving Money
In the culture of savings, you start with some little amount that if done correctly for a long period of time may can lead to wealth creation. It is unfortunate that for a large number of us, savings is a luxury.
This originates from the fact that most of us do not know how to invest. What comes into your mind is that you do not have enough money to start saving.
Let me remind you that if you stick to your budget, you can get something to save. If you’ve ever tried saving and failed, then you have come to the right place.
The following are the steps to follow in-order to cultivate a savings culture:
Step 1: Calculate how much money you need to raise through savings
The amount of money that you earn is less than the amount that you take home every month. This is thanks to the master work of Kenya Revenue Authority (KRA). We all know that taxes cannot be avoided. This is an expense for working. As we traveled in a car to the coastal part of Kenya, we loudly complained at how much the government is collecting from us every month in the name of taxes. The problem is that we are not receiving government services with the same level of seriousness.
Step 2: Draft a budget
Using a calculator or a pen and paper find out how much money you stand to save in one, two or a certain number of years. Before you arrive at this figure, list all the expected expenses that must be paid every month.
This can be in terms of car loan repayments, HELB loan repayments, groceries, entertainment and leisure, utilities, clothing, data charges, phone, petrol, car maintenance and insurance.
Step 3: Classify your expenses into wants vs needs
Classify your expenses into wants and needs. Note that needs are expenses which you cannot avoid. These are: rent, healthcare, transportation, food and transportation. On the other hand, wants are non-essential items.
Step 4: Subtract expenditure from your income
Is there any money left after you have spent on your needs? If there is at least 10 percent of your income left after spending for savings, then save that over the long haul.
Step 5: Review your expenditure to create more money for savings
If you find that you spend all the money that you earn, there is urgent need for you to make some adjustments on your spending pattern. This will create room for savings in your expenditure plan. Forgo restaurant meals and instead embrace home cooked meals. Feel free to make some drastic changes in your monthly budget. For instance, you can downsize on your rental space.
Step 6: Create an emergency Fund
Creating an emergency fund is a brilliant idea to take care of any unforeseen expenses. When emergencies occur, they can easily devastate families and can even change fortunes in strange ways. Start the process by accumulating savings to cover six months of living expenses. This is a smart idea to cushion yourself against unforeseen events in future. If you have people who depend on you aim at saving money equivalent to 9 months of living expenses. Make sure the emergence fund is kept somewhere safe but accessible.
Step 7: Clear short-term debt
After having put aside enough emergence fund, your next goal should be to pay off the short-term loans. If you pay off the short-term debts, this will free your some of your money which is eaten up by the loan interest repayments.
Step 8: Saving Money for your short-term goals
If you have some short-term goals, save and spend the money on them. These are the stepping stones towards reaching your overall goal.
Step 9: Invest any spare money
There are many options on where to invest your money. History has shown us that the stock market is a good option because of its solid performance track record. This is a great wealth accumulation strategy. The only caution is that you should only invest money that you will not want in the next few months. The Reviews.com has evaluated 37 online stock trading platforms to determine which options are the best for achieving growth and diversity in portfolios. Here is a link to the report to get you high quality advice on The 5 Best Online Stock Trading Sites.
Saving money takes tons of discipline and hard work. Plan with care in order to succeed. If you make the sacrifices now, you will be on your way to financial freedom.
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