Set a budget and stick to it
A budget lets you track where your money goes and can help you free up cash for savings and long-term goals. Starting a budget is relatively easy; you can use a budgeting software tool, or simply jot down your income and expenses on paper.
Before starting, however, it’s a good idea to analyze your spending for a month to see where your income goes. Your spending can be broken down into three categories:
- Fixed, committed expenses (mortgage, rent)
- Other committed expenses, (groceries, utilities)
- Discretionary expenses (eating out, vacations)
To free up cash for savings, begin by reducing discretionary expenses, then look at other committed expenses, some of which may be reduced by simply planning ahead. Aggressively paying down high-interest-rate credit card debt will also help. If your credit card debt is high, consider paying it off with a home equity loan, which may offer a tax deduction, or a consolidation loan.
Remember, the key to making a budget work is discipline: Recording daily expenses regularly and adhering to your self-imposed spending guidelines will ultimately pay off.