How to Save Money? The NSW Rule
Many times people run out of money. It is irrelevant nowadays how much one earns in a month, rather what matters most is how much money one has in a secured bank account for savings. However, saving money is not easy, because people interchange the process on how to do it.
Here are three simple steps one can follow through to save enough money for determined purpose or for emergencies in the future. Moreover, discussion about NSW rule is included.
First: Know your needs and wants
Knowing the lifestyle one wants to have is important. It is important to keep a balance. Needs include food, sufficient clothing, transportation, communication, utilities and shelter. Wants include travel expenses, everything that pampers oneself and excess to ones needs both in quantity and quality. For example, having two black shoes is reasonably enough for a person. However, buying a third and expensive black shoe is already a want.
Focus first on needs. List down all the necessities in a month. After knowing needs, determine the lowest possible expense in each category. Add 10 to 15% to the sum of the expenses incurred for needs. For example, 10,000 pesos in a month plus 1,500 pesos (15%). This totals to 11,500 pesos.
Check whether you have enough earnings for your needs. If you do, then continue for the next step. If you do not have enough salary, see how you can lower your expense on other categories by at least 40%. Yes you read it right. 40%! So that is 4,000 pesos of the 10,000 pesos, making it 6,000 pesos ( plus 900 for 15%). If it is not possible to lower it by 40%, then one must make decision to compromise wants over savings. Lowering your need expense by 40% gives you a challenge to live below what you have been. This a test for anyone.
If you are only earning 10,000 pesos and your expected expense after 15% raise is 11,500, you definitely have a deficit. Should you have lowered your need expenses by 3,000 pesos to 7,000 ( plus 1,050 for 15%), this means in a month you will definitely use 8,050 pesos for needs and have 1,950 pesos extra. The general rule your need expense should be lower than your earnings by at least 15%.
Second: Allot Money for Savings
Allotment for savings is taken from the difference of earnings and one's need expense. For example, 10,000 pesos for earnings minus 8,050 pesos for needs. The extra would be 1,950 pesos.
In this extra amount, more than half is alloted to savings. For example, 1000 pesos and the remaining 950 pesos is for your wants. This reminds yourself that Needs first, Savings second and Wants third. It is very simple N - S - W. It is arranged alphabetically. S (savings) can not be taken first before N (needs), because that would compromise yourself and your significant loved ones in addressing basic necessities. On the other hand, W (wants) can not precede N (needs) or S (savings) because you will end up in debts later on.
Third: Monitor your probable and actual expenses
Expenses are not just listed and planned, it must be implemented. Adjustments can be made but NSW rule should never be violated, especially savings and wants allocation. Savings must be bigger than your wants. If you fail to do so, try harder next time. The time you make your savings bigger than your wants means that you have definitely become stable financially and have great control over yourself and your expenses.
The importance having enough savings in the midst of uncertainties is important. Whether one is a student, young, middle-aged person or a pensionist, he or she must continue to save. This recognizes that one must prepare enough for the future, without compromising one's needs in the present. :-)