Ditch the Budget – Leading Financial Planner
Although it is already mid-February, it isn’t too late to think about your savings plan for this year.
If one of your New Year’s Resolutions was to save more, now is a good time to see how you are doing with that goal. Financial advisor Donna Skeels Cygan says more than 25% of Americans have no emergency savings to buffer them from financial disaster. Even more, 33%, have no retirement savings.
Every year, in everyone’s life, there are peaks and troughs, and it doesn’t take much for one of those peaks to wipe you out.
So whether you have a buffer or not, Cygan says you need to do something, better than you already do, and even if you have a budget to keep yourself on the financial “straight and narrow,” there is something you can do, other than sticking tightly to a budget, because most of us are not successful at stating on the waggon.
She says “People so often fail to budget because, just like going on a bland diet, it’s restrictive and makes us feel deprived.”
Budgeting can be OK, but saving is much better. Aren’t they the same thing? Cygan says they are closely related, but budgeting and saving are two distinctly different things.
The important difference between bedgeting and saving is “With saving, you stay focused on something positive because there’s (almost) literally a pot of gold waiting for you at the end of the road,”
Budgeting makes you feel as though you are doing without the things you want, but with saving, you can “track the growth of your assets and take comfort in your future financial security.” She says while you are doing that, you will find that the areas of your finances you would otherwise have tackled via your budget, fall into place organically.
Here are the seven saving tips:
Set A Baseline
Determin how much you are saving now (maybe it is 0). For this to work, you must be specific, otherwise, you can’t move to the next step. If you don’t have the right tools to help you do this, try some of the free resources available online. Her website, www.joyoffinancialsecurity.com, is one of them. Click on ‘Resources,’ then ‘Tools.’ Use the ‘Current Savings Rate’ chart to determine what percentage of your gross income you’re currently saving.
Set A Savings Goal
Once you know the percentage of your current income that’s currently going to savings, decide how much you want to increase that number by the end of the year. 5 percent is a good number to remember. If your saving percentage is zero, aim for 5 percent. If you are already saving 5 percent, aim for 10 percent. Any improvement is great, but the key is that it must be achievable otherwise, you will set yourself up for failure. The old yardstick was 10 percent, but life is not so easy now, and 15 is the new recommended minimum, with 20 percent setting you up for future success.
If you can automatge your savings, you are less likely to notice that money is “missing” from yoiur bank account, and you don’t have to remember to put it away each month or each payday. Cygan says some people use the strategy of saving whatever is left at the end of the month, but that rarely works well.
Save More Early In The Year
Some times of the year are more expensive than others. That makes saving your target amount much more difficult. Cygan suggests you “get as much saving done as possible during the first half of the year. By the time vacation season rolls around, and then the holidays, you will already have made great headway. Track your progress and watch your savings or investment accounts grow each month.”
If your income and expenses are too close for comfort, then look for places to cut expenses, so you can meet your saving goals. There may be one or two things in your expense that you can work on to get a better deal – check out your cellphone costs, and youur your insurance policies,. Put the magnifying glass on your cable TV, internet, clothing, entertainment and eating out. One or more of those areas may yield savings – but be careful you are not breaking a contract and always ask about up-front fees in phone or cable TV, because that can lead to a nasty surprise in your first or second billing cycle. Do you buy junk food at the store or an extra-large soda that you don’t really need?
Cutting things you like can be hard, but the goal is to “redirect that money to savings,” Cygan says. Don’t think of these actions as budgeting, because it makes you think of what you are missing. Instead, she says, “remind yourself of the lasting value and security of savings.”
Working on “everyday savings” is your plan, but seize any opportunity to boost your savings. “If you are lucky enough to get a tax refund, send half of it to savings,” she says. “If you get a bonus or a raise, send half of it to savings. If you pay off your car loan, send the amount of your former payment to savings each month.”
Save With A Friend
Most people find they can achieve their goals more easily if they have a trusted friend or buddy to help them. It works with dieting, exercise, studying, and it can work with personal finance too. You can offer encouragement to each other, and hold each other accountable. Cygan says, “It can also be useful to have an outside pair of eyes when reviewing your monthly expenses. Someone else can take a look at things you take for granted (say, extra features on your cell phone plan) and ask, ‘Do you really need that?'”
Make a commitment to yourself for 2015, save more.
Cygan has the last word: “You’ll find that it gets easier with practice … and it may even become fun to see how much you can help your nest egg grow. Best of all, you’ll never have to ‘budget’ again.”
Donna Skeels Cygan, CFP®, MBA, is the owner of the financial advisory firm Sage Future Financial, LLC, and the author of The Joy of Financial Security: The art and science of becoming happier, managing your money wisely, and creating a secure financial future.