July is Savings Month, and this year the benefits of saving have been further highlighted as we face a global pandemic. Saving money is one of the most important things that can help you be financially secure under any circumstances. The first step towards getting where you want to be financially is to set SMART goals.
Your savings goals could be to have access to immediate cash in case of emergencies such as a car that needs urgent repairs or an unexpected hospital admission that requires you to make an upfront payment. Another goal could, and should, be to have money saved up in case you’re no longer earning an income from your job. With advances in medicine and technology, people are also living longer into retirement now, which makes the goal of saving for the future even more important.
Budgeting is one of the most effective ways of managing your money. Not knowing if your money will take you to the end of each month is stressful. While it may not be evident immediately, this structure to your finances will also help to relieve some stress. If you're new to spending money according to a budget, it might seem like too much effort at first. You may even feel that it could be too restrictive. The reality is that you have far more to gain from working with a budget than without one.
Five benefits of budgeting
Being in control of your monthly finances, especially during times like these, can be an incredibly rewarding feeling. Drawing up a budget and sticking to it means you decide beforehand what you'll be spending your money on. Here are some of the benefits you could experience by following a budget:
- Budgeting prevents you from overspending. It puts you in control of your money so that you have something to show for the money you spend.
- It helps you see how you can realistically reach a financial goal, no matter how small it is.
- Working out a budget means you know exactly how much you allocate to all your different needs. It gives you some certainty in managing your money to get you through the month.
- It can help you see where you can be flexible with how you spend your money. If you decide to spend more on one need and less on another as the month goes by, that's fine, as long as you don't cut down on saving.
- It helps you save. As you get used to working with a budget, you could start seeing the amount you are able to save every month increase.
How budgeting can help you save
Changing to a savings mindset means that saving money becomes one of the top priorities in your budget. When drawing up a budget and comparing it to previous months' spend, you will also see where you're actually able to save money or where you could be using it incorrectly. This 'wasted' monthly spend is money that can go towards paying off debt and to increasing savings. Seeing that you actually have more money than you thought, will help you reach savings goals you previously thought were unattainable.
Tips to make monthly budgeting simpler in difficult times
Budgeting doesn't have to be complicated and time-consuming. But, spending a little time on your budget can spare you a lot of time stressing about your finances, especially if you are experiencing a decrease in your monthly income during this time. Use these simple tips to help make your budget a fairly hassle-free, positive experience:
- Track your spending for a month - This will show you exactly where your money is going and how even the small amounts you spend add up.
- Look at three areas of your monthly spending you can improve on - Most of us don’t overspend in all categories, but only a few. This could be on cellphone usage, clothes we don't need or spending a lot on take-away foods. Having tracked your spend for a month, these areas will show up. Choose three of these and start monitoring and controlling what you spend there to possibly free some money that you can put towards your savings.
- Make saving your top priority - Remember your personal goals that you would like to reach. One of the main reasons for your budget would be to identify where you can save so that you can put this money safely in a savings account where it can grow with interest. Set up a recurring monthly transfer to make sure that your allocated savings is automatically transferred to a savings account before you can spend it.
- Allocate percentages of your income - As a starting point and if you’re struggling to decide how much to allow for each budget category, simplify your budget using the 50/20/30 Plan. With this plan, 50% of your income is set aside for necessities, 20% for long-term savings, and 30% for other lifestyle activities. As soon as you have a track record of your monthly spend, you can decide where you want to spend more or less.
- Use an online budgeting calculator to help you get started. Calculators such as these give you a comprehensive view of all your expenses and shows you where you can make changes that will build up your financial resilience.
This article is meant only as information and should not be taken as financial advice. For tailored financial advice, please contact your financial adviser.
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