From time to time I will also add some articles about personal finance issues and how I get through this everyday challenge. Beginning with November I will also publish my saving rate and my monthly expenses separated into the following categories:
Due to the fact that I do not want to publish my monthly income, I am going to show the percentage for each category.
Coming back to the topic budgeting and why it is important for financial freedom. If you want to start with investing in dividend stocks or any other businesses you first need capital. Well there several ways to gain capital e.g. winning the lottery J. But one of the easiest and most successful ways is saving. Therefore it is necessary to keep record of your monthly expenses to figure out where there are possibilities to cut down your expenses. Believe me just by keeping record of your monthly expenses your spending behavior will change significantly. The month I started to track down my expenses I immediately increased my saving rate by around 10%. This is the first lesson you learn “What is our spending behavior ?”
Once you have figured out in which categories you can reduce the expenses, it is time to start with a monthly budget. A good budget should be challenging but not unreachable, this means set your first saving rate goal between 25% to 30 %, right now my saving rate is at around 45%.
So now you set up a monthly budget with the following rules you will also able to reach your goal:
- Stick to your Budget
- Avoid unnecessary expenses
- Non budgeted costs only for emergencies
- Be clear what you want to do with your savings (goal setting)
- Think in the long term (e.g. additional monthly savings of $50 per month in 10 years it will be $6,000)
To my opinion it also very important that with an increasing monthly income you should also increase your saving rate, because the more cash you have the more you can invest. For me budgeting and saving money is not necessarily living below your means its more living within in your means.
I know now a days it is quiet tempting to spend money on everything, to buy a new car, to buy a house etc. just because everyone is doing it.
What are our experiences with budgeting and saving money?