Once you know your income, the
next category to consider is savings. “What?” you might ask. “Isn’t
a spending plan meant for planning what you spend?” It’s
true that plans help you manage your spending. But they also
help manage what you save.
Wise financial experts often say, “It’s not what you earn that
matters, it’s what you keep.” All of the income in the world
won’t help you if you spend every dime. If you make a million and
spend a million, what are you left with? Zero. In a way, you’re no
better off than the person who makes $100 and spends $100. You might have
bought a lot of stuff in the process, but you’re still left with
The easiest way to save money is to follow one simple principle:
pay yourself first. Every time you receive any income, make a
point to save some. A good rule of thumb is to save 10 percent
of all you earn. Some people even save 20 percent or 50 percent!
When you create your budget, make “savings” your first
expense category. Put your savings away before you spend any
of your income. Saving is like writing a paycheck to yourself. It shows
that your goals
Saving is important because it helps you care for yourself over the
long term. If you’re lucky, you’ll live many years. There
may be times when you’ll need extra money for an expense you
didn’t expect. There may be times when you’ll need money
for a special purchase. If you’re a good saver, you’ll
have that money when you need it.
Plus, having savings helps you to feel secure. When you’ve
got money saved, that’s just the point—you have it. It’s
best to develop a balance between spending and saving. Both are important
money management skills.
You may wish
to have two savings accounts, or even three.One
account can be for savings that you never touch.
You can let that savings build up so you’re
ready to invest one day. (For more on investing,
visit the Investing section of this Web site.)
savings account can be for a big purchase.You
might wish to save for a car or a vacation, for example.
The money might take a year or more to save. If you
start now, your funds will grow before you know it.
A third savings
account might be for short-term purchases.These
purchases can be saved for in less than a year. You
might want to buy a special pair of shoes or a ticket
to a concert. A good savings plan will help you reach
your goals. You’ll be amazed at how easy it