Getting you savings under control is very important, if you have
the time or money you could go to a financial advisor, but if you
haven't got the time or money then the tips below could help.
What exactly is savings? Saving involves setting aside a certain amount of money on a regular basis to cover your future needs. These needs can be defined as expenditures that will need to be paid at a time in the future. Usually they would fall due for payment in the medium term which I would define as between five and ten years. There are two types of future expenditures that need to be covered through savings and they are known expenditure and unknown expenditure
Identifying your Medium term expenditures:
The known expenditures include predictable costs such as children's education, a new car or house renovation. It is important that you identify these future costs to allow you to make adequate provision in your savings plans.
It is not prudent to find yourself in a situation where, through poor forward planning, you have to scramble to find the money to cover children's educational future. Creating a savings pot now will allow you to provide for these costs at a time in the future.
The unknown expenditures are expenses that we can't plan for, as we do not know when they will be due or how much they will cost. However, we do know that we will have to provide for them on an ad-hoc basis throughout our lives. Examples of unknown expenses can be such things as medical expenses or needing to replace your car as a result of a breakdown.
By putting money aside in savings allows you to provide for these unknown expenses at a time in the future.
This is not always an easy thing to do and becomes even more difficult where there is no clear budget to work from. The fact is that saving takes money out of your current funds and sets them aside for a future need.
Parkinson's Second Law gives us a good idea how lack of planning can result in an inability to create this provision. The law states that expenditure will increase to meet your monthly or yearly income.
What does that mean? Quite simply, it is stating that where income increases, the tendency is to increase spending on luxury items as opposed to setting aside the increase as part of a bigger plan. Your expenditure therefore increases to match your new income level and results in you ending up in the same position you were in before the income rise.
Rather than allowing this to happen, it is important to "Pay Yourself First" at the start of each month. As part of your budget you need to identify the portion that is for you and that will provide for your future in terms of the future known and unknown costs. It will also provide you the opportunity to create wealth. Once that figure is identified the first thing you do each month is to put it in to a designated savings plan / account.
One idea is to take a figure of 10% of your salary and put it away the minute the money comes in from your wages. Where there is an increase in wages or income you should also look to increase your savings by 10% of the increase. This will counteract the theory of Parkinson's second law.
The rest of the money is then left to cover the bills, food and mortgage and forms the basis of your budget plan. This money now allows you to cover the future costs and also avail you of any opportunities that may arise in the future to build wealth in every area.
What exactly is savings? Saving involves setting aside a certain amount of money on a regular basis to cover your future needs. These needs can be defined as expenditures that will need to be paid at a time in the future. Usually they would fall due for payment in the medium term which I would define as between five and ten years. There are two types of future expenditures that need to be covered through savings and they are known expenditure and unknown expenditure
Identifying your Medium term expenditures:
The known expenditures include predictable costs such as children's education, a new car or house renovation. It is important that you identify these future costs to allow you to make adequate provision in your savings plans.
It is not prudent to find yourself in a situation where, through poor forward planning, you have to scramble to find the money to cover children's educational future. Creating a savings pot now will allow you to provide for these costs at a time in the future.
The unknown expenditures are expenses that we can't plan for, as we do not know when they will be due or how much they will cost. However, we do know that we will have to provide for them on an ad-hoc basis throughout our lives. Examples of unknown expenses can be such things as medical expenses or needing to replace your car as a result of a breakdown.
By putting money aside in savings allows you to provide for these unknown expenses at a time in the future.
This is not always an easy thing to do and becomes even more difficult where there is no clear budget to work from. The fact is that saving takes money out of your current funds and sets them aside for a future need.
Parkinson's Second Law gives us a good idea how lack of planning can result in an inability to create this provision. The law states that expenditure will increase to meet your monthly or yearly income.
What does that mean? Quite simply, it is stating that where income increases, the tendency is to increase spending on luxury items as opposed to setting aside the increase as part of a bigger plan. Your expenditure therefore increases to match your new income level and results in you ending up in the same position you were in before the income rise.
Rather than allowing this to happen, it is important to "Pay Yourself First" at the start of each month. As part of your budget you need to identify the portion that is for you and that will provide for your future in terms of the future known and unknown costs. It will also provide you the opportunity to create wealth. Once that figure is identified the first thing you do each month is to put it in to a designated savings plan / account.
One idea is to take a figure of 10% of your salary and put it away the minute the money comes in from your wages. Where there is an increase in wages or income you should also look to increase your savings by 10% of the increase. This will counteract the theory of Parkinson's second law.
The rest of the money is then left to cover the bills, food and mortgage and forms the basis of your budget plan. This money now allows you to cover the future costs and also avail you of any opportunities that may arise in the future to build wealth in every area.
A website that puts give you access ot a Financial Advisor so that you can get the Financial Advice you need.
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