by Cindy Tabacchi

Created on: June 08, 2009

Saving money requires that you spend less than you earn. This can be accomplished either by earning more, or reducing living expenses to spend less. This isn't necessarily as painful as it sounds.

First, you need an actual picture of your financial situation. Start by documenting all of your income and all of your expenses. Use the actual numbers from your bank account, credit card statements, and saved receipts, not hypothetical numbers based on what you think you spend. Now you can evaluate your expenses based on your priorities.

What aspects of your current lifestyle are important you? Maybe you like fashionable clothing, but don't care what kind of car you drive. Some people place great importance on their home, but others spend so little time at home that a more modest home is acceptable. Understanding your priorities will help you create a realistic spending plan that can actually be followed.

Next, create a spending plan that results in less money spent than earned. This is the hard part. Each category in your spending plan needs to have a dollar amount assigned to it. If these dollar amounts add up to more than your take-home income, you'll need to make adjustments. Evaluate each item based on what's important to you.

This may require you to make adjustments in your lifestyle. Perhaps home ownership costs more than your current income allows and renting would make better sense. Could your family get by with fewer vehicles or less expensive vehicles? Plan meals and prepare food at home to save on food costs. Consider nearly new clothes to save a bundle on your family's clothing. This is especially cost effective for children because they frequently outgrow clothing long before it's worn out.

Evaluate every purchase. Think about whether it is really needed or if something you already have will work. Sometimes it makes better sense to rent or borrow tools rather than owning something that will be used infrequently. If you still think you need to buy something, but you don't need it immediately, write in down and wait for a few days or weeks. You may find that you really don't need the item, or if you do, at least you'll have time to shop for the best price.

Finally, record every expense throughout the month. Compare these expenditures to your spending plan weekly. When you've spent the amount allotted in each category, you're done spending for the month. It's that simple.

Saving money doesn't just happen. It takes planning and self discipline to follow a spending plan. Lifestyle adjustments may be necessary to achieve your saving goals.

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