Building Your Personal Savings
Personal Savings Rate or PSR is the fraction of personal income that is not consumable. In the United States, the average PSR is 4%. However, it might come as a surprise to you, but for the year 2008-09, the PSR in the States was a record high of 6%. Currently due to the present economic slowdown, people have now probably realized that only their savings can help them sail through this difficult period.
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:
Make An Effort
Your most obvious step would be to make a determined effort towards saving. It is not easy but it is not impossible either. Start small and work your way through to larger saving amounts. What and how much you save at the end of the day are not important. Just the fact that you have finally come to terms with your situation is more important.
Create a Budget
Examining your budget and making adjustments will also help. As noted earlier, reducing monthly expenses and living off 80% of your regular spending might be easy for the first month, but you will need to write up a budget in order to ensure sustainability in the following months. Cutting down on luxury spending like entertainment and fine dining alone can help you find the funds necessary to increase your PSR.
Be Disciplined
Don’t forget that improving your Personal Savings Rate will take time. You will need to be persistent and disciplined in your approach. You will want to never revert back to your old spending habits. Without persistence and discipline, you may find it hard to do make such a change.
Patience is a Virtue
Remember that long-term goals often require the benefits of time before you start seeing tangible results. As such, you will need to practice patience. When it comes to improving your personal savings, remember to be patient and the results will present themselves seemingly suddenly. Patience is key.
Practice Self Control
It may be easy to monitor discretionary spending at first, but after a few months, this will become a lot more difficult and trying. When faced with difficult purchasing decisions, consider whether you can make do with a similar item that you already own. Keep your budget in mind. This will require a tremendous amount of self-control.
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.