Budget Planning 101 - stage 4

  • Saving Money

    If you're just joining the budget planner, you should review the previous lessons:
  • How to establish your current spending

  • How to eliminate excess expenses

  • Expense Planning

  • In the previous lessons, you learned where you stand in your current spending. Knowing where you money is going is really the most important factor in getting control of your finances. Then you used this information to cut out excess spending and hopefully are using your money a bit more wisely now. In our last lesson you saw how to plan for emergencies and the non-regular expenses. The next step is saving money.

    There may be several categories for saving money depending on your individual goals. When most people think about saving money they think of far off goals such as college tuition and retirement. You need to start thinking about 'spending' in a different way in order to understand the ideal of saving money. Ideally, we save money ahead of time, with specific purpose such as big purchases, special occasions, travel and vacations, as well as the far off goals such as retirement. This is a different paradigm from the current standard of charging those big purchases and playing catch-up later.

    You may be thinking what is the difference if I save up for a purchase before or pay over time after a purchase. There are two difference: life, and interest. The unknown, or life as I refer to it as the first difference, is a reality of everyone's finances. Things happen all of the time that are beyond our control. As much as we try to plan for those unknown expenses as we did in lesson 3, there will sometimes be things for which we did not plan. It could be unfortunate things, such as family illness or an accident that causes missed work and wages, or a layoff from your job. Or it could be more happy occasions that may have gone unplanned: a new baby, a friends wedding gift, an invitation to the governors ball for which you need a new dress. The point is that unexpected things happen, and when you have already made a purchase that you are now trying to catch up with, it makes life that much more stressful. The second big difference with saving as opposed to charging, is interest. You will pay more for that item in the long run if you borrow that money and pay it back over time, rather than saving first and purchasing outright.

    So I hope that this lesson has helped you to think differently about saving money. Saving ahead is cheaper, less stressful, and can help get you through life unknowns a little easier.