It’s not enough to just make ends meet with the salary you are earning. You need to be able to sock away a portion of you income for savings and investments—at least 10% of your take-home pay. In addition, you need to invest 15% of your income in a 401k or other retirement plans.
This financial principle still holds true even in today’s economic environment, stresses Gwendolyn V. Kirkland, a certified financial planner and managing principal with Kirkland, Turnbo & Associates in Chicago. “But just as you allocate dollars to pay your bills and support your lifestyle, you have to save a percentage of every paycheck you get,” she says.
Pay yourself first. That’s the rock solid foundation of every wealth building strategy, and the one most often compromised. When you are paying your bills on the first and fifteenth of each month, write a check to yourself that is earmarked savings as part of your monthly expenditures, advises Kirkland.
Now is not the time to focus on paying down debt if you don’t have enough money in savings, says Steve Rhode, founder of GetOutofDebt.org and president of the consumer services company Myvesta Foundation, in Wake Forest, North Carolina. “Pay only the minimum on your credit cards and reduce spending until you have three to four months of living expenses in a cash reserve,” he explains. “Cash is king at this point.”
Take advantage of direct deposit to build up savings. Have money automatically deducted from each paycheck and funneled into certificate of deposit, money market, or savings account. This way, the money won’t just slip through your hands and you won’t have to fret about forgetting to save or that you’ll end up spending it on unnecessary items, say financial advisers.
Come up with the money to add to your savings, then decrease your expenses. There are many simple ways to tighten your belt. For example, minimize bank charges by using ATMs from your bank, staying away from payday loans, as fees are excessive, or giving up expensive habits such as cigarettes. (Your doctor will thank you.) Use coupons for food, dry cleaning, and other services or products you use. Even consider borrowing books, DVDs, or CDs from the library for free.
You can find good deals, coupons, cash-back shopping, and freebies online. Check out such sites as Fatwallet.com, CheapCheapCheap.org, Slickdeals.com, CouponChief.com, and RatherBeShopping.com.
Kirkland says there are ways as well to increase your income such as selling items you no longer need or use. Sell old and unwanted clothes, shoes, and handbags through online sites such as eBay, Craigslist, and Bonanzle. Whatever you can’t sell donate to charitable organizations, such as the Salvation Army, so that you can at least get the tax deduction, Kirkland adds.
If that’s not enough, consider getting a part-time second job. Thinking outside the box helps when coming up with new ideas for extra income.
Further Reading: Wealth For Life Principles
1. I Will Live Within My Means
2. I Will Maximize My Income Potential Through Education and Training
3. I Will Effectively Manage My Budget, Credit, Debt, and Tax Obligations
4. I Will Save At Least 10% of My Income
5. I Will Use Homeownership as a Foundation For Building Wealth
6. I Will Devise An Investment Plan For My Retirement Needs And Childrens’ Education
7. I Will Ensure That My Entire Family Adheres To Sensible Money Management Principles
8. I Will Support the Creation and Growth of Minority-Owned Businesses
9. I Will Guarantee My Wealth Is Passed On To Future Generations Through Proper Insurance And Estate Planning
10. I Will Strengthen My Community Through Philanthropy