One of the ways to determine how much you can repay toward your debt is to consider your Personal Savings Rate, or PSR. The way to figure out your PSR is to take a look at what you do not consume at the end of the month and divide it into your personal income. The resulting percentage reflects your Personal Savings Rate. In the United States, the average PSR typically hovers around the 4% mark, but given the current economic troubles has reached as high as 6% recently. By increasing your PSR, you can not only weather extended periods of economic strain, but you are better positioned to repay consumer debt.
To increase your PSR percentage, you can do a number of things. One approach would be to spend just 80% of what you normally spend on a monthly basis on discretionary living expenses. For example, if you normally spend $1,000 on entertainment and other enjoyable experiences, then you would try to make do with spending just $800. That could mean cutting out some activities or settling for no-name groceries. In addition, increasing your PSR will allow you to save enough money now to lead an abundant lifestyle at a later date, such as retirement or during the next economic downturn. In addition to reducing your living expenses, you can take any or all of the following steps:
Take the First Step
The easiest starting point is starting a separate savings account. Beginning with a nominal amount, say $50 of every pay check, will increase the chances of success and allow you to adapt rather easily. With time, you can increase the amount, but starting small will allow you make the necessary adjustments to your budget. More importantly, simply setting up a separate savings account allows you to mentally prepare for becoming better off financially.
Create a Budget
Chalk down a budget. Don't go too stringent at first. Allow room for unexpected expenses so that you are ready for them when they arrive. Instead cut down on discretionary spending arenas like entertainment and going out to restaurants. Maintaining a budget that helps you save up to 20% of your monthly expenditure would be your first step towards increasing your personal savings rate.
Be Disciplined
Remember to practice discipline and persistence. When you decide to start improving your finances, you will find that you need to commit to it for the long-term. Plan on never reverting back to your old spending habits and you will find that your Personal Savings Rate will improve rather easily.
Patience is a Virtue
You will need to practice patience when it comes to improving your personal savings rate. Results may take time, but they will surely appear. By practicing patience, you will find that the results will actually appear quicker than you originally thought. A best practice is to ignore the savings statements when they come in the mail until a full year or two (or more) have passed.
Self-Control
Remember that you will need to monitor your discretionary spending. This may be easy at first, but will require true effort after several months. By sticking to a budget, you will want to make do with existing material items and not make purchases on a whim. Again, this will require a great deal of self-control.
Monitor Progress
You would also require keeping a track of your spending habits. Remember to keep a close track so that you can work on it to improve it further and to stay focused on your long-term savings goal. This might mean recording every dime you spend or simply matching balances at the end of the month to your budget.
Make Adjustments
As a final note, you will want to allow flexibility in your plan. This essential ingredient is often lacking in budgeting plans and is one of the leading reasons why most of them fail. So, if you find yourself behind plan after a month, a quarter, or even a year, don't sweat it. Incorporate flexibility in your plan and make the necessary adjustments to get back on track or change the budget altogether.
In conclusion, increasing your personal savings rate translates into longer-term financial independence. When financial crises strike next, you will be better equipped to handle them. Furthermore, establishing a plan early will reward you with greater financial control down the road, and when you reap the rewards in the future, you will wonder how you ever survived any other way.
To increase your PSR percentage, you can do a number of things. One approach would be to spend just 80% of what you normally spend on a monthly basis on discretionary living expenses. For example, if you normally spend $1,000 on entertainment and other enjoyable experiences, then you would try to make do with spending just $800. That could mean cutting out some activities or settling for no-name groceries. In addition, increasing your PSR will allow you to save enough money now to lead an abundant lifestyle at a later date, such as retirement or during the next economic downturn. In addition to reducing your living expenses, you can take any or all of the following steps:
Take the First Step
The easiest starting point is starting a separate savings account. Beginning with a nominal amount, say $50 of every pay check, will increase the chances of success and allow you to adapt rather easily. With time, you can increase the amount, but starting small will allow you make the necessary adjustments to your budget. More importantly, simply setting up a separate savings account allows you to mentally prepare for becoming better off financially.
Create a Budget
Chalk down a budget. Don't go too stringent at first. Allow room for unexpected expenses so that you are ready for them when they arrive. Instead cut down on discretionary spending arenas like entertainment and going out to restaurants. Maintaining a budget that helps you save up to 20% of your monthly expenditure would be your first step towards increasing your personal savings rate.
Be Disciplined
Remember to practice discipline and persistence. When you decide to start improving your finances, you will find that you need to commit to it for the long-term. Plan on never reverting back to your old spending habits and you will find that your Personal Savings Rate will improve rather easily.
Patience is a Virtue
You will need to practice patience when it comes to improving your personal savings rate. Results may take time, but they will surely appear. By practicing patience, you will find that the results will actually appear quicker than you originally thought. A best practice is to ignore the savings statements when they come in the mail until a full year or two (or more) have passed.
Self-Control
Remember that you will need to monitor your discretionary spending. This may be easy at first, but will require true effort after several months. By sticking to a budget, you will want to make do with existing material items and not make purchases on a whim. Again, this will require a great deal of self-control.
Monitor Progress
You would also require keeping a track of your spending habits. Remember to keep a close track so that you can work on it to improve it further and to stay focused on your long-term savings goal. This might mean recording every dime you spend or simply matching balances at the end of the month to your budget.
Make Adjustments
As a final note, you will want to allow flexibility in your plan. This essential ingredient is often lacking in budgeting plans and is one of the leading reasons why most of them fail. So, if you find yourself behind plan after a month, a quarter, or even a year, don't sweat it. Incorporate flexibility in your plan and make the necessary adjustments to get back on track or change the budget altogether.
In conclusion, increasing your personal savings rate translates into longer-term financial independence. When financial crises strike next, you will be better equipped to handle them. Furthermore, establishing a plan early will reward you with greater financial control down the road, and when you reap the rewards in the future, you will wonder how you ever survived any other way.
About the Author:
With more than 16 years in the financial services industry, Chris Blanchet has helped thousands of people improve their financial lives. He is the author of Help Fix My Finances, a personal finance program of the same name. He maintains a Debt Free Blog at How to Repay Deb.com.
No comments:
Post a Comment