How to Build Up a Savings Portfolio (Savings Boot Camp)
Saving money is an essential part of your financial fitness. In tough economic times, making ends meet often takes precedence over setting money aside. An emergency savings account of at least three to six months' expenses, however, becomes even more important when the risks of a job loss or other financial setback are higher. A short-term, intense focus on increasing your emergency fund -- a savings boot camp -- can jump-start your savings and help you develop habits to carry on even in times of prosperity.
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Instructions
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1
Determine your current situation. Before you can get started on a savings plan, you need to know where you are financially. Write down all of your assets and liabilities to determine your net worth, and then on a separate sheet write down your monthly income and expenses. Don't forget to account for less-frequent periodic expenses, such as auto or homeowners insurance, that are billed quarterly, semi-annually or annually.
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2
Write down your savings goals. Set deadlines, and make them realistic and attainable. If you don't have any emergency savings, you might want to start with a small goal, such as saving $1,000 or one month's expenses. Set future goals to increase your fund; if you have six months' expenses set aside, increase your fund to nine months' or a year's.
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3
Develop a budget and stick to it. Divide your listed expenses into categories such as housing, utilities, insurance, food, health, entertainment and transportation. Separate the essential expenses from the non-essential. If your income is close to or even less than your expenses, you'll need to cut out some of the non-essentials such as cable, gourmet coffee or eating out at restaurants.
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4
Stop using plastic. Increasing your debt by using credit cards is contradictory to saving money. Even debit cards or bank check cards that automatically withdraw money from your checking account encourage overspending. For one month, put your plastic in a drawer and pay for everything with cash. Make up envelopes for each of your budget categories, and put the appropriate amount of cash in each. When the cash is gone, you're done spending in that category for the month.
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5
Generate additional income. If you don't have anything in your emergency fund and your income is not substantially more than your expenses, it may take a long time to build significant savings. Increasing your income can speed up the process. If a second job isn't feasible, sell items you no longer use at a garage sale, consignment shop or online auction; hire yourself out for babysitting, carpooling, or running errands for busy or infirm neighbors; or provide tutoring services to local students.
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6
Track your goals and reevaluate as necessary. At the end of your first cash-only month, review your financial situation as you did in step 1. Not only will you be able to adjust your budget and behavior to stay in tune with your goals, but seeing the progress you've made will motivate you to continue saving.
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Tips & Warnings
Loose change adds up quickly. Keep a jar or can handy and toss in your coins at the end of every day.
Utilize automatic deposits. Once you've completed your savings boot camp, you should set aside 10 percent of your income for savings. Having this amount directly deposited to your savings account makes it easy to save and less tempting to spend.
Stop using credit cards. It bears repeating that you cannot save money if you're increasing your debt at the same time. After you've established your emergency fund, start paying off any accumulated credit card debt.
Don't neglect your retirement accounts. When your emergency account is fully funded and your credit cards are paid off, turn your attention toward your retirement and maximize your contributions to those accounts.
References
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