It is a must for every individual to save money for tough times. Spending money extravagantly can result in insufficient or no cash balance. Investment plans should be identified to save money as and when there is an opportunity or when excess cash is available.
Any amount of idle cash available at home should be deposited in a bank account to take advantage of extra interest income gears TV. No matter how much income is earned by an individual, it is always a wise decision to save some part of the money.
An individual should assess his/her monetary requirements every month. A well-developed budget can help an individual in identifying the areas where costs can be controlled. It will also help in identifying the amount that an individual can expect to save every month.
Three Steps Involved in Calculation of Monthly Savings
Prepare a Budget
It is not very complex to prepare a budget. An individual should list down all possible sources of income and areas of expenditure. This activity should be done at the beginning of every month. A provisional amount (a fixed amount or a percentage of the estimated cost for the month) must be also included in the total amount of expenditure. This helps the individual to be prepared for any kind of unexpected costs that were possible for him/her to estimate at the time of preparation of the budget.
Note Down and Compare Actuals with Budget
Even though an individual may be quite accurate in his/her estimates, it is always advisable to note the actual amount of all incomes earned and all expenses incurred. By comparing actual amounts against the budgeted figures, an individual can identify all the possible areas where savings can be made. For Instance, an individual may have expected an amount of $ 100 on laundry services during July 2011. At the end of the month, he comes to know that the total amount spent on laundry service was $ 150. By making a comparison of the actual amount versus the budgeted amount, he will come to know the possible deviations. Further, he can take appropriate measures to minimize unnecessary costs.
Identify the Savings
An individual can easily identify the amount of savings by deducting actual expenses from the number of actual incomes. For Instance, an individual’s total income for July 2011 was $ 2,000 and his actual expenses were $ 1,200. This individual will be left with an amount of $ 800 at the end of the month. This entire amount of $ 800 or any amount that an individual may decide to deposit in a bank account or some other financial instrument for future purposes may be called savings.
In case the actual amount of expense was lower than the expected amount, an individual will be able to realize extra savings. For Instance, the individual estimates that his total income for August 2011 would be $ 1,500. At the same time, he expects a total monthly expenditure of $ 1,400. As per his expectations, he would be able to save around $ 100 at the end of August. In case his total actual expense turns out to be $ 1,250, his total savings would increase from $ 100 to $ 250.