If you’ve resolved to save more money the easiest way to start is to use the ‘pay yourself first’ method, which you may have heard of.
To pay yourself first open a separate bank account for your goal and establish an automatic, regular transfer occurring the day after you are paid.
Sounds simple, but people who try the ‘pay yourself first method’ often still have no savings on a year-to-year basis.
The common cause people describe is bills cropping up that they didn’t expect or didn’t plan for. This leads them to dip into their savings to cover the surprise expense.
If enough surprises arise, eventually there are no savings left and the cycle of living pay-to-pay resumes.
Plan for the predictable
The thing is that many expenses that blow people’s budgets and eat into their savings are predictable occurrences. The precise amount and timing may vary but the occurrence is very likely.
Bills that recur every pay aren’t typically the problem, because we can easily recall these when creating a budget.
It’s the expenses that are a bit further out that are easily overlooked.
A good budgeting system overcomes this challenge by incorporating the principle of ‘planning for the predictable‘.
Since the occurrence of the expense is likely, build an allowance for the expense into your cash flow plan.
A great budgeting system also provisions for:
- Buffer: to absorb the impact of higher than expected predictable expenses
- Emergency: to provide fast access to money in the event of an unlikely but serious event.
To learn how to build a great budgeting system that keeps you on track despite inevitable surprises contact me.