My income exceeds my expenses. However, I only save approximately 10% of my income every month, which is $250 or less. My savings are not enough, and I am a victim of reckless and unplanned spending, and by the end of the month, I find myself dipping into my savings. No matter how strict I decide to be, especially making and trying to follow a budget, I always find myself overspending.
Similarly, from my budget, 50% of my income goes to essentials such as food and clothing. The remaining 50% was meant to be discretionary spending and savings, each at 25%. Based on my budget, I realize that most of my income goes to discretionary spending, particularly entertainment. Consequently, my savings are not enough as there are days when I do not have money for necessities. I plan to cut back on unnecessary spending such as going out with friends, take out and unplanned purchases. This can help me to comfortably save up to $500 a month.
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My short-term savings are not adequate and in case of an emergency, I will be forced to take a loan from friends or lending apps. According to Guthrie & Nicholls (2015), budgets should have allocations for emergencies. My savings are meant to be my emergency fund, but I barely have any savings. I realize the importance of having an emergency fund as it will give me peace of mind, and yet I have consistently failed to keep enough short-term savings.
On one occasion, I was faced with an emergency that required $400 to handle it. I ended up borrowing from a lending app, and it took me two months to clear the loan with interest. This affected my budget negatively, and I had to cut down on spending to service the loan. This incident showed me the importance of emergency funds, and in my new budget, I have made changes to increase short-term savings to cushion myself against future emergencies.
One of the most common bank account is the savings account. A savings account enables the holder to save money at small amounts and withdraw it anytime in case of an emergency. Additionally this type of account is a safe way of keeping money. Investment accounts are affected by the changes in the market, whereas savings will remain the same (Harrington et al., 2017). A savings account attracts minimum interest, but it is the best way to safeguard money. Another advantage of a savings account is that it is easy to open and maintain. Most banks do not require a minimum amount for a savings account. The account gives the account holder the freedom to pay bills through card or online account making it easy to manage finances.
How much you need in savings depends on an individual’s financial situation. A popular budgeting strategy is the 50/30/20 Rule whereby 50% is dedicated to fixed spending, 30% discretionary spending and 20% savings.
Financial advisors suggest that we should save at least 3 months' budget to survive in case of an emergency such as a job loss or sickness (Stouffer, 2012). There are some tips for increasing one’s savings. An important tip is to make savings automatic. The hardest part of saving is remembering to save; by making savings automatic, it becomes easy to save. Many organizations and banks often provide information and procedures of how to save. Many saving apps can encourage saving through their flexible plans. Individuals are encouraged to use at least one saving up to work towards achieving a financial goal. Lastly, one must always keep an emergency fund to be able to handle crises when they arise.
References
Guthrie, C. P., & Nicholls, C. M. (2015). The personal budget project: A practical introduction to financial literacy. Journal of Accounting Education , 33 (2), 138-163.
Harrington, C., Smith, W., & Bauer, R. (2017). Influencing business student intent to use a personal budget. The Accounting Educators' Journal , 26 .
Stouffer, T. (2012). The Only Budgeting Book You'll Ever Need: How to Save Money and Manage Your Finances with a Personal Budget Plan that Works for You . Simon and Schuster.
