Put Yourself First
Start Saving Now

Many people are jubilant if their expenses equal their income, but in the long-run it will be difficult to save and invest unless your disposable income exceeds your expenses. Like a diet, budgeting only works in the short-term if it involves deprivation. In addition, many people find immense frustration if they must delay satisfaction (purchasing the things they feel they need or want) for so long that their budget efforts seem ineffective. However, a little bit of patience and savings now can carry you a great distance in the future.

Budgeting can be simple or complex based on your income and lifestyle. There are four points you ought to consider in order to make certain your budget will pay you first.

Begin the process by recording all your expenses. A simple chart should first list living expenses such as mortgage or rent, utilities, taxes, and services such as childcare. Then list necessities such as food, clothing, and medical expenses. Remember to include insurance costs and entertainment such as a night at the movies. At this point, most lists end. However, you must now add one more line and label it “my investments and savings.” If you treat investments and savings as an expense that needs to be made on a weekly or monthly basis, you will be a lot more likely to set the money aside for yourself.

Once you’ve calculated the dollar amount you spend on each item, convert that to a percentage. For example, suppose an individual earns $6,500 per month and has a mortgage payment of $2,500 per month. Simply divide $2,500 by $6,500 to determine that the expense is 38.5% of income for that one item. By performing this calculation, you will identify the relationship of each expense to your total income. Then the process becomes a matter of reducing percentages whenever practical. The idea is that a number of expenses can be trimmed a small percentage at a time. Categorize expenses as either fixed or flexible. You have discretion over the latter but not the former. Generally, it is the flexible expenses that erode funds for savings and investments.

Take your list of expenses and rank them as important, moderately important, or unimportant. Begin by eliminating the unimportant items. This in itself may be enough to begin a modest investment and savings program. If it isn’t, eliminate some of the moderately important expenditures; then pay yourself first. And, here’s the key: Don’t just eliminate the amount–write out a check to a special account and start saving. Where the money goes depends on how much you have. If you begin with two hundred dollars, you might use a savings account or money market fund. If you are retirement-minded, and you qualify, use an Individual Retirement Account (IRA) until you’ve contributed the maximum annual contribution.

It is often difficult for any two people to agree on which expenditures are more important than others. It is natural for couples to disagree on budget choices, especially in two paycheck families. It is primarily a difference in priorities that cause couples to disagree. Negotiation and compromise generally help couples sort out their most appropriate and important expenses.