Building Your Personal Savings
When it comes to repaying debt, a lot of people will review their personal savings rate, or PSR. In plain English, your Personal Savings Rate is the amount of income that you do not consume. The average PSR in the United States has hovered around 4% but given the recent economic problems and depressed consumer confidence, that level has recently touched as high as 6%. With an increase to PSR, people are finding they are better able to repay debt and weather future economic crises.
To increase your PSR percentage, you can do a number of things. One approach would be to spend just 80% of what you normally spend on a monthly basis on discretionary living expenses. For example, if you normally spend $1,000 on entertainment and other enjoyable experiences, then you would try to make do with spending just $800. That could mean cutting out some activities or settling for no-name groceries. In addition, increasing your PSR will allow you to save enough money now to lead an abundant lifestyle at a later date, such as retirement or during the next economic downturn. In addition to reducing your living expenses, you can take any or all of the following steps:
Start By Making a Focused Effort
An obvious starting point would be to make a focused effort to set aside money in an actual savings account. The easiest way to find success with this method is start with a small amount (say $50 of every pay check), and gradually increase the amount as you adjust to your new budget. As well, the act of establishing a savings plan will allow you to become better off financially.
Create a Budget
Putting a budget down in writing will help sustain the reduced spending in the long-term. As noted earlier, spending just 80% of your income can probably be achieved rather easily, but without an actual budget, the following months will be a lot more difficult. Creating a budget will allow you find simpler ways to live off of just 80% of your normal spending. Hint: a great place to find extra funds will be in those discretionary areas like dining out and entertainment.
It Takes Time, Be Patience
Be disciplined all along. This is not something that you have to do for a month or two and then revert to your normal spending habits. Keep a long-term perspective in mind to gain maximum benefits.
Patience is a Virtue
You will need to practice patience when it comes to improving your personal savings rate. Results may take time, but they will surely appear. By practicing patience, you will find that the results will actually appear quicker than you originally thought. A best practice is to ignore the savings statements when they come in the mail until a full year or two (or more) have passed.
Don’t Forget Flexibility
Keep your flexible and open spending habits to the minimum. Now that you are on a budget, you cannot go out and buy the latest products in the market especially if you do not need them.
Monitor Progress
You will also want to track your progress as you go. This could be as simple as matching your month-end balances to what you planned in the initial budgeting process, or it could involve tracking every cent that passes through your wallet.
Make Adjustments
As a final note, you will want to allow flexibility in your plan. This essential ingredient is often lacking in budgeting plans and is one of the leading reasons why most of them fail. So, if you find yourself behind plan after a month, a quarter, or even a year, don’t sweat it. Incorporate flexibility in your plan and make the necessary adjustments to get back on track or change the budget altogether.
To summarize, when you increase your personal savings rate, you are building long-term financial wealth and happiness. This will result is lower stress levels when financial crises strike without warning. By establishing a plan and sticking to it, you will not only enjoy the benefits of greater control of your finances, but you will wonder how ever lived without such a program in the first place.
