The 5/10 Rule of Savings and Personal Budgets
If you're like most folks, you don't have enough money in your savings accounts. "Enough money" means you have six to nine months of living expenses in a liquid account that you can access if the need arises. That's enough money to cover your rent or mortgage, your car payments, your food and clothing and phones, your mad money, your cable - whatever you spend every month.
If the unexpected happens -unemployment, a serious accident, a death in the family - you've got enough savings to cover your expenses without putting additional strain on yourself.
Think about that. What do you think your life will be like if you have to worry about money in addition to whatever terrible circumstance has
Perhaps the "gloom and doom" approach doesn't motivate you. If so, here's something else to consider: six to nine months of living expenses in savings means you can continue to live your life in the style to which you've become accustomed no matter what happens to you in the short term. If you want to change jobs, for example, but discover that it might take you more than a month or two to find a new one, you're covered!
If you can stash that amount immediately by moving a few accounts around, then do it right now! If, on the other hand, you can't, then start small and follow the 5/10 rule. If your current annual taxable income is below the poverty line, save five percent of your income every month. Otherwise, save ten percent of your income every month.
That's right - every month! No time off for good behavior or holidays! The U.S. Poverty Threshold is $10,400/year for one person, and $21,200/year for a family of four. If you're grossing $1000 a month, find $50 to put away, even though you may have to cut some painful corners. Keep in mind that you're making a short-term sacrifice for some long-term security.
If your current income position is better than sea-level, you must put ten percent of your gross income in savings every month. If you aren't able to do that immediately by taking that amount out of your monthly discretionary income, then cut some corners of your own. Reduce your cable package to basic, or get movies from the library for awhile instead of going to the movie theater. Drop that second WoW account. Save the top shelf wine for special occasions. Plan your grocery shopping in advance instead of making random purchases. Host a cocktail party one weekend instead of going out for drinks. Try to make your changes entertaining, because if you replace one option with a more frugal one that's just as fun, you'll be more likely to stick to your plan.
By following the 5/10 rule and saving five or ten percent every month based on your gross annual income level, you'll take a serious step forward in the direction of your own financial security.
Author Maria Webster is the editor of ".51 - Geekspace For Women".
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