Prioritize and Compromise
3) Allocate income in terms of percentages. The idea here is that there are a number of expenses that can be trimmed a small percentage at a time. Determine what percentage of your income goes to each expense, and then categorize them as either fixed or flexible. You have discretion over the latter but not the former. It is generally the flexible expenses that erode earnings.
4) Prioritize. Take your list and rank your expenses as important, moderately important, or unimportant. Eliminate 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, and then pay yourself first. And here's what's important: Don't only eliminate the amount, write a check for that amount to a special account and start saving.
5) Compromise on Expenses. It is natural for couples to disagree on budget choices, especially in two-paycheck families. Ideally, you must compromise and negotiate until you sort out the most appropriate and important expenses.
(Mr. Wallace holds NASD Series 7 (General Securities) licenses and Group I and IV Life-Health Insurance Licenses. He is a Registered Representative of MML Investors Securities, Inc., an Investment Advisor Representative of Spectrum Strategies, LLC, and an Investment Advisor Representative and Registered Representative of MML Investors Services, Inc. You may reach him @ ejwallace@finsvcs.com or visit his website at spectrumstrategiesllc.com.)
Putting Yourself First
6) Where your money goes depends on how much you have. If you begin with $200, it might be a savings account or money market fund. If you are retirement-minded, and you qualify, you can contribute up to $2,000 per year on a pre-tax basis into an Individual Retirement Account (IRA). Or, better yet, in some circumstances you can make even greater pre-tax contributions to an employer-sponsored retirement plan (e.g., 401(k)). All earnings in these retirement savings vehicles generally accumulate on a tax-deferred basis.
Remember, putting yourself first means making your financial future and well being your biggest priority. Sure, it may be necessary to forgo purchasing some enjoyable, yet unneeded items. However, the “dividends” that a disciplined savings program can ultimately pay you will certainly outweigh a strategy of overspending. Putting yourself first means solidifying your future.
Analyze Your Spending
That's why adopting a “pay yourself first” attitude can have a positive impact on long-term budgeting, spending, and investing.
Follow these simple steps to take control now, and to pave the way for a bright future:
1) Take a close look at what you spend. Begin the process by recording all your expenses, listing such living expenses as rent or mortgage and utilities; services such as childcare; and necessities such as food, clothing, medical expenses, etc.
2) Include your “investments and savings” with expenses. If you treat investments and savings as an expense which must be made on a weekly or monthly basis, you will be a lot closer to setting the money aside.
