As you get your savings started, it turns out there is a method to the order in which you should save.
The first step is the Emergency Fund. An emergency fund is for...EMERGENCIES! Don't touch it for anything else! That would include unexpected medical procedures, loss of a job, etc. Use self control.
How much is enough? Most experts recommend estimating your average monthly expenses and then multiplying that by six to twelve months. Some also say that you should save 6 to12 months of your monthly income rather than expenses. Whichever you choose to do, the idea is that you will have plenty to get by should an emergency occur and your family will be much less likely to experience financial distress.
How to do it? Each month, when you are saving 20% of your income, put that 20% into an emergency fund. Use an account that is liquid (meaning it can be easily converted to cash) and low-risk -- probably a savings or money market bank account, NOT an investment account as the balance could decrease. Keep doing this until you have 6 to 12 months in savings and then you can go on to the next step in savings, which I'll tell you about later.
P67D34BVCUU5
Showing posts with label savings. Show all posts
Showing posts with label savings. Show all posts
11.3.10
13.2.10
Build A Better Budget : Part 3
I just realized that I forgot about a very important part of creating your budget--the structure!
1st -- Pay the Lord. 10%
2nd -- Pay yourself (personal goals). 15-20% is recommended. We'll talk more about this later.
3rd -- Pay others (expenses).
4th -- Apply leftovers to your personal goals.
If you can learn to use this structure, you are twice as likely to be able to accomplish your goals because you get two chances to put your money towards those goals. Many people set up a budget like this:
Income - Pay the Lord - Pay others - Pay yourself if there's anything left over.
Can you see what's wrong with this method? If you ALWAYS pay yourself before you pay others, you are guaranteed to meet your personal goals eventually. If you pay others first, you likely won't have anything left for yourself. If you're still skeptical, here's what L. Tom Perry had to say about this:
"After paying your tithing of 10 percent to the Lord, you pay yourself a predetermined amount directly into savings. That leaves you will a balance of your income to budget for taxes, food, clothing, shelter, transportation, etc. It is amazing to me that so many people work all of their lives for the grocer, the landlord, the power company, the automobile salesman, and the bank, and yet think so little of their own efforts that they pay themselves nothing."
CHALLENGE: Always pay yourself 20%.
1st -- Pay the Lord. 10%
2nd -- Pay yourself (personal goals). 15-20% is recommended. We'll talk more about this later.
3rd -- Pay others (expenses).
4th -- Apply leftovers to your personal goals.
If you can learn to use this structure, you are twice as likely to be able to accomplish your goals because you get two chances to put your money towards those goals. Many people set up a budget like this:
Income - Pay the Lord - Pay others - Pay yourself if there's anything left over.
Can you see what's wrong with this method? If you ALWAYS pay yourself before you pay others, you are guaranteed to meet your personal goals eventually. If you pay others first, you likely won't have anything left for yourself. If you're still skeptical, here's what L. Tom Perry had to say about this:
"After paying your tithing of 10 percent to the Lord, you pay yourself a predetermined amount directly into savings. That leaves you will a balance of your income to budget for taxes, food, clothing, shelter, transportation, etc. It is amazing to me that so many people work all of their lives for the grocer, the landlord, the power company, the automobile salesman, and the bank, and yet think so little of their own efforts that they pay themselves nothing."
CHALLENGE: Always pay yourself 20%.
Subscribe to:
Posts (Atom)
