• Tue. Jun 18th, 2024

How to Manage Your Spending to Increase Savings


Aug 1, 2023

How to Manage Your Spending to Increase Savings

Most people cringe when they hear the word budget. They were often think of budgeting as dieting. But in the first place, budgeting and help you save money by planning properly. They allow you to access and prioritize on the important things you need.

First of all, the process of budgeting (planning your expenses) involves analyzing the spending habits and your money goes to. When you do that, calculate how much you would like to save each month. But still, the hardest part is to determine where you would have to cut on your expenses.

Let us assume you are not saving any of your income for the past few years. You have been ignorant about financial savvies until now. On the other hand, you would like to save as much as 10% for your retirement in the future. How can you do this? If you can save and invest through a tax-sheltered retirement account (401(k) or 403(b) or ‘SEP-IRA’ or ‘Keogh’), you do not need to cut your spending by 10% to reach your savings goal of 10% of your income.

You should also be aware of contributing money to the right sources. When you contribute money to a tax-deductible retirement account, you are actually reducing your federal and state taxes. But if you earn a moderate amount of salary that pays 30% in federal and state taxes (on your marginal income), you actually need to reduce your spending by only 7% to save 10%. How is this possible? The other 3% of the savings will come from the lowering of your taxes! You should now be aware of the higher your tax bracket, the less you will need to cut on your spending. This is particularly true if you plan to reach a specific savings goal.

Therefore, in order to help you save as much as 10% (of your income) for your savings, look through your spending categories. Check and scrutinize each one of them and decide which one is suitable for deducting expenses. Of course, you would want to select only a few, not all. This is because some categories might hurt you more if you decide to spend less on that particular section. For example, you would not want to be frugal when it comes to the food category. That would be suffering, would not it? But still, cut spending where you think the expenses do not provide you with much value.

By Lucille