No matter what economic experts or the media tells us about the changing tides of fortune, almost everyone has felt the pinch of the recent economic slump. Investments in retirement accounts, a down payment for the home of your dream, and even personal savings are becoming more difficult to maintain. So for those who have yet to begin saving money or building an investment portfolio, it can seem almost impossible to begin saving in a bad economy - especially if you feel like you are already cutting back. Changing the way you budget begins by cutting back in lots of little ways, all of which will gradually lead you to the financial security we have worked toward for so many years. Where to Begin Budgeting Track your monthly expenses. You can't change your spending habits until you bring them all to light. Begin by listing all of your income. Next, list your "fixed" expenses (things like rent, car payments, and insurance). From there, you'll need to list your varied expenses (such as hobbies and entertainment). Use bank statements and receipts to track all of your spending for an entire month, even for those purchases that seem insignificant. Identify necessary expenses, and prioritize the rest. You may be surprised how quickly those insignificant purchases add up, and you'll see all the areas you can begin to cut back. Develop a budget that fits your lifestyle. Once you know where your money is going, you can intentionally direct it to where you need it most. Your spending priorities begin at home, with mortgage, food, utilities, and medication. Next come loans with collateral, followed by other debts and obligations, and finally, savings. Prioritize your debts; pay the most on the highest interest loans first. Cutting back in areas where you see fit is important; cutting out too many expenses too quickly can make it hard to stick to a budget. Modify what you already do, for example, examine and adjust your cable and cell phone packages. Establish an emergency fund. No matter how difficult it may seem, you have to begin saving money; the important thing is to start. Set up an automatic withdrawal of 1 to 10 percent of your take-home income, and within a year you could have over a month's salary set up as emergency money. Set aside three to six months of income. This is a minimum, and necessary in the current bad economy as a safety net. Although the figure probably seems enormous right now, break it down into smaller, more manageable goals that you can reach throughout the year. Pay down your debt. Stop using credit now, and pay off what you have. Many people find that having a financial advisor to help make the right choices in paying down debt is a wonderful way to get past any fears or feelings of shame you might have. Save for retirement. Start your retirement plan at work, and contribute at least the amount your employer matches. If your company doesn't provide a traditional 401(k) plan, you may need to set up a retirement account or portfolio with the help of your advisor. Small Ways to Reach Your Big Goals The most important thing for a financial plan in a bad economy is to break everything down into manageable chunks. The big picture looks bleak to just about everyone right now, which is why small goals that you can visualize and attain will reinforce your good saving habits. To do this, set small goals - and reach them. For example, cut back your entertainment budget by $10 each month and add that to a credit card payment. Automatically deposit gifts of money, tax returns, and bonuses into you income savings account. Make lunch twice a week if you typically eat out. Saving money is possible, and necessary - especially in a bad economy. Thoughtfully cutting back and increasing the amount of money you save will lead you to financial security and success.
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