One of the most effective ways to add to your monthly savings and build wealth is to use a budget. I know what you're thinking. Been there, done that! Well if you have struggled with saving money, you are not alone. Unfortunately, most Americans can't afford an unexpected $400 expense let alone having the necessary savings for retirement. By taking small unexpected cash windfalls and investing them rather than doing what comes naturally for most of us, spending it, you can build real wealth. If you give me a minute of your time I will show you what I mean.
Here's an example:
We typically try to budget throughout the year a fixed amount each month to fund our spending on vacations. We do this for two reasons:
- This helps to keep us accountable to our travel budget. If it's not in the budget then we have a decision to make. Reduce our spending or take the money from savings.
- Keeps us on-track to meeting our other financial goals. For us, a budget is a tool that enables us to fund our current lifestyle and set a side the funds that will ultimately provide for our retirement.
Since I use the budgeting software Quicken, I can easily check how much is in the budget for airfare and whether or not I have the funds to cover purchasing the tickets. If the cost of the tickets comes in below budget, simply move this money from checking into a savings account and transfer to a Roth IRA when you have a sufficient sum to invest.
Other Small Cash Windfalls
You can use this strategy of taking small unexpected cash windfalls from everyday spending to build savings as well. Maybe you budgeted for dinner and a movie every Friday but this week a group of your friends is getting together. Move this money into your “Wealth Building Savings Account” and invest it in your Roth IRA or other retirement account.
Once you get started and begin to see how quickly these small amounts add to your net worth and retirement savings you'll be looking for more ways to find additional savings and build wealth!