Budgeting
I'm a big proponent of using cash. Yes, I see great advantages in using rewards cards that let you rack up cash back incentives or miles for travel, but personally, I feel that credit cards can lead to trouble as I stated in my earlier post. The key to budgeting, and eventually saving, is breaking down the areas which you spend your money and then deciding where you can cut back to save. I'm going to be transparent about my finances and post a typical monthly budget. There are a few things to note: 1. My fiancee and I split the rent 60/40, 2. Utilities are split 50/50, and 3. Money leftover in any category gets shifted around as needed (ideally, it ends up in my savings account, but that's not always the case). You probably do this on your own already, but if you don't definitely start and limit your self on things like eating out and going out.
Rent: $1,050
Utilities (Gas, Electric, Cable/Internet): $150
Cell: $90
Student Loans: $125
Gym: $80
Car Insurance: $55
Groceries: $250
Entertainment: $250
Savings: $280
Total: $2,410
Saving Money
Envelopes
I've heard of the "envelope savings method." The idea here is that you budget your cash in multiple envelopes and label them for their use. I use this method, but I do not use multiple envelopes, I use post-its to separate the cash in one envelope. The money you do not use at the end of the month gets put into a savings account (but it usually end up shifting money around). This helps me budget and save because I don't over spend like I would if I used a debit or credit card.
I Got Five On It
This is an odd one, but apparently it helps folks save. I've never tried it, but the ideas is you save every five bill you receive as change for a purchase. I think it's a bit quirky, but some folks say it helps.
Change Jars
An oldie, but a goodie. I've used this to help stretch my dollars every year. I have an old jelly jar that I've had for about ten years. Every year it gets filled with $100 in change around summer time. This past summer, my fiancee and I used the $100 for a lunch and dinner while we were in Hawaii. Save those pennies!
Automatic Transfers
If you have a savings account, awesome! If you don't get one! I use my bank's savings account and I have two savings accounts with my online trading account. I have automatic transfers for each account. My savings account with the bank has $30/week deposit, the brokerage accounts each have bi-monthly deposits of $40. Currently, my bank savings account will be used for my down payment, one brokerage account will be used for cash-on-hand for random expenses on the day of our wedding, and the third account is being used to save for things like the appraisal, home inspection, and closing costs. I have also used the accounts to save for Christmas shopping, a vacation, and my fiancee's engagement ring. Multiple savings accounts are great to have and I highly recommend them if you want to keep your cash fluid.
After budgeting your money, you need to figure out what to do with it. You can't let your money get old and slowly suffocate from inflation under your mattress. In case you don't know, unspent money loses value (around 2%) every year. In other words, if you have $100 that you saved since October 2012, it is now worth around $98. Doesn't sound like a lot? Well, if you move the decimal east a few zeros that's a lot of cash going to waste ($10,000 in 2012 is now has the buying power of $9,816). Either way, your money is better off earning SOME interest rather than NO interest.
Diversify to Avoid Inflation
Stocks
Personally, stocks are my favorite way to save money. In late 2009, I purchased a few shares of various stocks after the stock market tanked. I've since sold the rest and kept GE. GE, like some stocks, pays a dividend. At .18 cents per share, it's not a lot. However, it does add up over time. Since 2009, I've doubled my money and earned a small amount of cash every three months from GE's quarterly dividends. I plan on selling all of my stocks once we put an offer on a home. I will probably pull the money within the next three months to avoid and crazy market fluctuations. Please be cautious when investing because you can just as easily lose your money.
Bonds
I've never purchased a bond, but I used to get them for my birthday as a kid. When I was 16, my mom found them all and gave them to me. I cashed them out and used them as part of my down payment for my car. Basically, a bond is a loan that you make to an institution with a promise that they will pay your loan back, plus interest, by a certain date. The treasury has a type of bond known as a "T-Bill" which you can purchase through any online brokerage or your bank. An NPR reporter released a segment in which he discussed investor confidence in the government during the shutdown. He purchased a T-Bill for $999.78, which could be sold for $1000 at the end of this month yielding him a whopping .22 cents.
CDs
I have a friend who is a big believer in CDs and I like them too. This is a good idea if you plan on sitting on your money for a long time. You can lock in various interest rates based on how long you plan on leaving your money in them (3 months, 6 months...5 years, 10 years). The idea is that you choose how long to lock in your money and then you leave it in there to gain interest. The downside of this savings method is that you cannot remove your money until the date specified by the certificate. If you have an emergency and really need the money, you will be penalized for breaking the contract. Penalties vary by institution.
No matter how you decided on budgeting and saving your money, the bottom line is save early and save often. Even if you're not planning on making a huge purchase anytime soon, save for an emergency. Even if you feel like you can't save a whole lot. Avoid that extra beer once a week and you can throw $10/week in to a jar. At the end of the year you'll have $520. That can put a big dent in your Christmas present budget or pay for half your rent!
Thanks for reading and feel free to comment or shoot out a question! Look for my next post about Wants vs. Needs!
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