How to save monthly

The other day I said a reader who had started working, I had no mortgage, living with his parents and was not able to save.

Another reader told me that he had two children, mortgage, paying the car was hardly reached to make ends meet. He said that now was not the time to think about saving.

Two cases are different but have the same result: I cannot save because I have so many expenses.

Most people can not save because they do not know their expenses and they do not know each amount they spend. Therefore, a first step would be put in writing, and record the expenses / total income of each concept.

• INCOME : They usually do not vary much unless our income is variable or have significant investments that we provide high dividends. Therefore, as planned should match the estimate.
• EXPENSES : They are divided in several categories, each of them, there are different concepts. Typical costs are facing a family / person. If you're not seeing any, can be included under "Other."

This will allow us to:

1. Identify all our expenses.
2. Rebalancing our expenses.
3. Adjust those overspending.

After including all income and expenses, may be given several cases:

CASE A. High loan

If a large portion of our revenues are to pay different loans (credit cards, personal loans, mortgage) is necessary to design an action plan to be able to  eliminated these debts. Starting first on the cards and loans, as detailed here or here . In short, if we have different debts is time to fight againts them and design a plan to cancel our debts. Once done, we'll get to work with the cancellation of the mortgage that requires time and discipline .

CASE B. High expenditure on leisure

Maybe you'd have to ask yourself the level of life you lead. Certainly the money is to spend it, but someday you will have to save for a house, your retirement, etc, if you do not want to lower your standard of living when you reach those goals.

CASE C. High expenditure on day to day

Many of these are inescapable expenses (electricity, water, electricity) but with responsible consumption can be reduced. With regard to spending on mobile, landline, internet, satellite tv, etc. I recommend you to compare different companies and reduce consumption.

Analyze our costs is the starting point for making a plan and start saving in order to meet targets in the future.

Save or Spend

People usually say that they do not save because the money is to spend and to be lived daily. I save because this way I will be able to spend more on and I do not want to borrow.

The differences between saving and not saving:

1. Mortgage

• Savings: allows me to buy a home, I have to pay the mortgage costs and a major gateway that allows me to apply for a loan you can afford without relative difficulty (Euribor up or not). This is the most efficient way to buy a house and save € 60,000.

• No saving: I have to get a high mortgage, because I barely saved to afford the down payment and I have saved practically nothing to give any money. Consequently, my mortgage fees will be higher and, therefore, to be more affected the interest rate will be worse.

2. Buy Car

• Savings: I bought the car as explained with my savings. So I do not have to get a loan.

• No savings: Since I have no money I ask for a personal loan, so my standard of living will decline in coming months to repay the loan. Besides, I have to pay a lot of interests for the loan. Finally I also bought a car, the difference is that I'll be drowned out by a loan.

Save 2,000 $ with your credit card

Do you have debts with your credit cards? Have you begun to use the card recently and has increased your debt without realizing it? Do you always shop with your credit card and pay the monthly minimum? Think you could make better use of your credit cards?

If you answered "yes" to either question, I have to give you a bad and good news. The bad news is that "you have a problem," the good news is that " It is possible to manage debt and go slowly reducing it if we develop an appropriate plan . "

First, we must be aware that the money spent on credit is not free and that the interest we pay for using that credit is very high (around 20% APR). Second, you have to write to the head as follows: "NO COSTS OR BUY SOMETHING IF YOU DO NOT HAVE MONEY FOR IT" (the credit card is not your money).

Just use your credit card if you pay the total month-end.

I recently asked a friend who had three credit cards with a debit balance of  2,000 $ each, how he had come to that situation. He shrugged his shoulders and he said he only used his card to buy and pay the minimum on each (60 $) per month because it was more convenient.

Well, it's time to take the bull by the horns and design a plan to pay off our debts. Let's do the numbers:

How to save for contingencies

Once we are clear that we need liquidity and safety, we will detail the different alternatives that exist to create this bag for emergencies:

1. Savings account:  there are different savings accounts (especially online banks) with total-saving availability and instant liquidity and can have your money immediately. You can usually open from 1 $. Today, with interest rates near to 0%, the profitability that we will take our savings in the short term is small.

2. Deposit: the characteristics are very similar, only the term that our money has to be unavailable depends on the time we hire the deposit. Normally we can cancel the deposit in advance but at a lower pay.
       

3. Money market funds: they are investment funds that invest in financial assets in the short term money market rates such as Treasury bills, government bonds with repurchase agreements and commercial paper, ie in liquid assets, in order to facilitate liquidity shares immediately. For this reason they are called money funds. Assets are very safe and all financial institutions usually sell such funds. It should be emphasized, which is very important to find funds whose management comission is not very high, since the interest rates in Europe at 1,5 % and in USA at 0% , the product can not give us anything of profitability. 

What debts should you pay before

One of the main objectives that everyone should keep in mind is to pay debts.

It is a worthwhile goal, but sometimes it can be difficult to know where to start.Without a plan, it is easy to get discouraged because the debts do not disappear overnight.

Knowing your debts is the first step to create a plan that will allow you to cancel before and save money in the process. 

Therefore, you should ask your financial institution features a breakdown of your debts (outstanding amount, interest rate, cancellation fees, etc ...)

Pay off debt with highest interest rate first 

Each debt has its corresponding interest rate, some higher than others


The first type of debt to be paid are the credit cards. Typically this is the kind of debt that charges a higher interest. Once your credit cards are paid, we can start looking for other debts, personal loans or car loans are the following alternatives.


Saving for the mortgage when we´ve already canceled the rest of the debts

The mortgage debt is often the greatest, but at the same time has the least interest rate. Being a big debt, your cancellation will take years. Better to pay all other debts first, increase our level of savings and our self-esteem to get eliminated loans. Before you cancel your mortgage, check your other debts have been paid.

Have you developed a debt settlement plan already?

What are you waiting for?

Fight against your loans

Can you save if you have outstanding loans?

It is possible but preferably eliminate these debts because the interest we are paying are higher than we think (if you have a credit card with an outstanding balance of $ 2,000 and are paying every month for delayed payment $ 50 , the interest you pay the bank in one year is almost $ 400 )

Basically, we have three types of debts: 

1. MORTGAGE: It is the most important and the most dificult debt to cancel. For all this, it's worth to do a lot of effort to snap out of it. For instance: 

• $ 250,000 mortgage over 30 years. Average interest rate over the life of a mortgage 4% (we are generous). The total interest paid to the bank are almost $ 180,000, so that the house cost us $ 430,000. Not worth making an effort not to pay so much interest?

2. PERSONAL LOANS:  from loans to buy a car, going on loan to furnish the house, pay our wedding or even to go on holiday. Absurd, right?

3. CREDIT CARDS:  money spent on credit without it. Expenditures are basically whims. Even more absurd, is not it?

The average mortgage is around $ 800 month, a personal loan to buy a car is $ 300 month and the monthly payment on a credit card could be $ 100 month. A total of  $ 1200 each month to pay off debts, A lot of money or a slab?

What insights can we do about these three types of debt?

1. The mortgage is there and is what it is, but we can "fight" against it. Do you really want to return to the bank $ 180,000 in interests? Would you do something if I tell you you can save $ 50,000? And if they were $ 100,000?

2. Because we buy a car if you have no money. So need a car to be the first big spending ahead of the home purchase? How often do you change car? Why not do otherwise than other people? It is usual to buy the car, borrow and pay $ 300 month for five years. It would be better to save those $ 300 during all months and 5 years, and then with the money saved, bought the car.

3. How many cards do you have? Why use them? Why buy if you have no money to spend? A credit card should be for cases of extreme emergency. A tip: Do not carry it, be tempted to use it. Want to know how to design a repayment plan card? Sign up here to receive the best tips to save.

Break your credit card

1. If we spend what we earn, we can never have an emergency savings fund.
2. Furthermore, if we spend more than we earn, then we will need to borrow money to finance the excess spending.
3. If these costs are recurrent we have to return the borrowed money in ever smaller amounts and longer term.

In each of these situations, creating a pool of money that allows us to save for contingencies can be impossible.

Therefore, before creating a short-term savings, we have to solve our problems with credit cards.

If you're in the situation (1) , I recommend you do a detailed analysis of your expenses and to differentiate those that are essential expenses (mortgage, school children, food, household supplies, etc ...) of those who do not are. Only by adjusting the latter, we can start saving.

It is true that not all months are going to spend the same and that there will be months that expenses exceed our revenues slightly (2) . The problem here is the easy to use (credit card) rather than creating an emergency fund.

The problem with credit cards is that they have a perverse effect on our finances, since any money you have our card (unless you have payment later this month) we will have to return with their interests (such interests vary depending on the card and the interest rates, but usually around 20% APR)

Imagine a person who has a debt in his credit card of $ 2400 and he pays $ 120 each month to cancel the debt, broadly speaking, the client will take more than 2 years to repay the loan and will pay more than 500 € in interest.

Could you create a short-term savings if you pay € 500? As this amount is what you save in the event that you had the savings and did not have to resort to credit card under the above conditions.

Have I convinced you to break your credit card or at least not have it at hand?

Requirements for our short-term savings

When saving, it is not the same to have a contingency saving ot to have it for our retirement. What we look for our savings are entirely different things.

When saving in order to have some money to cover future contingencies or emergencies of any kind, when you invest those savings, we have to lay down two fundamental characteristics:

Short-term savings

The priority of a short-term savings is that we used to meet contingencies.

These are some of the contingencies to which a person has to face: a gift for a wedding we did not wait, buy a major appliance because we crashed, medical expenses, pour into our home, unexpected rise in car insurance , etc ...

Although generally short-term savings used to save these little unexpected, it is true that in the short term, any person may lose their jobs, causing a lack of income and saving our general plan is impossible to continue .

Therefore, it is advisable to have some money saved for a short period equivalent to 2 or 3 rolls. Why?

How to allocate savings

Once we are clear that saving is important, it's time to get down to work and deliver savings. It is important to remember that the money we save is to spend at different times in our lives, which will allow us to save is to spend without reducing our standard of living.

The first step we must take is, if we have not already done so, save for unforeseen or unexpected expenses (eg car repair, purchase of appliances for damage, home repair, etc ...). It is what we call SHORT-TERM savings. Such savings will allow us to basically two things:

Discipline. The key to create wealth

When I say discipline, I mean that the most important thing to save is to do consistently, so it is important that we consider as something aside each month / year for future expenses. It does not work to pay mortgage, loan, buying clothes / food, school expenses, dining out, vacations and then, if spare, save. NO, first turn away a lot of my monthly income and then come the bills.

The reason for doing it this way is because to be able to save, it needs to be regular and constant. 

Save Now or Never

The purpose of this blog is clear: SAVE. Seems easy and everyone seems willing to do it but in the end, what we leave and we start to finish and not doing anything.

It is important to know that we can all save. We all have mortgages, children, car loan, incidentals, etc ... These are just excuses for not saving and go leaving it for later.