Tuesday, April 29, 2008

Financial Advisor: Personal Budgeting Strategies and Savings Calculators

Financial Freedom Mini Series: Lesson 3

In this post I want to focus on giving you some specific personal financial advisor tips about the part of personal finance budgeting that I find to be the very important.

Many people dream about winning the lottery but for most this is highly unlikely. Despite this I am here to tell you that there is another way to reach your personal finance goals. This way takes lots of time and discipline but is also guaranteed, unlike the lottery. It is a consistent and steady plan of saving and investing.

In personal finance budgeting the most important part is the savings part. Savings in the most crucial step in achieving financial freedom and using a savings calculator can help you to determine how much you should save. This is hands down the most important part, no argument about it. Without saving some of the money that we earn there is absolutely no way we can ever even think about achieving financial freedom. If there is one piece of personal finance advice that you take from my whole blog it should be this. Savings is by far the most important component in achieving financial freedom.

Today I am going to go over the importance of savings, how saving can help you achieve personal financial freedom, give you some practical tips to help you save a portion of your money, and provide you with a savings calculator that can help you calculate how much your savings can add up to.

In order to achieve financial freedom and create wealth we must save money now. This means that we must live below our means at the current time in order to experience financial freedom in the future. We must save our money and invest it properly so that it can work to our benefit. If we save our money and invest it properly the money itself will begin create more money with little to no work on our end and the result will be us achieving our goal of financial freedom.

Savings is very important initially because it can help us to stay out of debt and as we know one cannot experience financial freedom when then owe more than you have. Having an emergency savings account fund will allow you to pull from that in times of need instead of charging the expense on your credit card. Unexpected expenses that savings can help with can be almost anything such as car repairs or medical expenses. Having this emergency savings account to pull from is so important because it allows you to stay within your personal finance budgeting plan that you have set for yourself. Most financial advisors suggest that each person have at least an equivalent of 3-6 months of expenses set aside in an emergency savings account.

After you have set up and established your emergency savings account the next step is to begin to save for the future. Plainly said, if you want to experience financial freedom you take control of your personal finances and have a significant reserve of money that will last you a long time. In order to do this you must save small amounts of money over a long time. Saving small amounts over time coupled with good investment decisions (done through a personal financial advisor) will help lead you on the path toward your goal of personal financial freedom.

Here is an example of how savings small amounts can add up over time. I got these numbers very quickly from using a savings calculator and you can do the same. You can either use the savings calculator I have included or you can search google for "savings calculators" and find a bunch of different savings calculators.

Now, back to the example. A person that has a take home income of $3000 per month should try to save at least 5%-10% of this each month. That is $150 to $300 per month. If someone was able to put away, we will say, $150 per month and merely make the average stock market return of 10% per year a savings calculator shows that they would have roughly $30,000 after 10 years and over $200,000 after 25 years. Now if this person saved $300 per month instead then after 10 years the savings calculator says they would have over $61,000 in 10 years and after 25 years would have about $400,000. The numbers are ever more astounding if done over 40 years or if the person makes slightly over the stock market average of a 10% return per year. As you can see, the power of compounding is very powerful and saving a small amount can help you to have a lot of money down the road and in turn bring you financial freedom.

I have include a savings calculator so that you can see how much money you will have after a X number of years by savings $Y amount of dollars each month and earning Z% interest each month.

The most important aspect of saving is to set goals for how much you plan to save and then stick to it. We must treat savings like and expense/bill or we will skimp off of it each month. Taking money from our paycheck and putting it into savings should be the first thing we do when we get paid. Without setting goals we will tend to take away from our planned savings and this will hinder our efforts at achieving financial freedom.

We should never ever plan to "save whatever is left over" this is a recipe for disaster and will almost certainly leave us saving nearly nothing. It is OK to set a certain amount and then add "whatever is left over" as an extra amount of savings.

The only tip I can really give you to help you stick to your savings plan is to stick to your personal finance budgeting plan and put the planned amount toward savings first.

It is all about self-discipline now so that you can achieve financial freedom in the future. As I have said before this all comes back to personal finance budgeting. This is the most important aspect of personal finances and will help you to succeed.

Please check out the savings calculator I have include in this post and calculate how saving small amounts of money will help you to gradually build up a lump sum of money.

Without building up this lump sum of money you will never succeed in achieving your goal of financial freedom. Please take this personal finances information seriously and do yourself a favor and begin your quest for personal financial freedom.


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