Are you always spending 90%-100% of your salary? Nothing to save at the end of the month, always using up next month’s salary to pay for your credit card bills? It happens to 60% of the middle income group. Read this now! There is not hard and fast rule, the most important aspect is to be very disciplined and prudent with your cash flow.

Create a Spreadsheet

Name it income statement MAY 2011. Idea of this worksheet is to know your monthly fixed and variable expenses/income, where are you spending your money. We want to do it monthly, so that proper review and forecasting of our own expenses can be done. Assuming monthly income is fixed; we can adjust our expenditures accordingly.

There should be a list of your fixed spending. EG; Mortgage, insurance, bill payments, spouse allowance, etc. These are expenses that are inevitable. It should be between 30% to 40% of your income. If it doesn’t fall within that range, review it and figure out which are the areas that can be reduced. Reduce your mobile usage, electrical usage, whatever.

Next is variable spending. A typical list is shopping, groceries, holiday expense, lottery etc. Personally I have a 1st to 15th and 16th to 30th of the month. I can’t keep track of those insignificant purchases, so I just dump it within the date-range. Ideally this variable spending should be around 10%- 15%.

Also credit card purchases is not recommended unless overseas, or a large ticket item which you are able to pay it off within a month. At the end of the day, we don’t want to be borrowing money from the bank and end up in debt when you cannot even afford the purchase. Even instalment repayment plans can be a liability!

Finally set aside 25% - 30%of your salary for savings. I would suggest this sum of money to be debited from your account monthly, on the day that you receive your pay check. Majority of the people would leave it to the end of the month to do this. How to save when you spent every dime of it?  Reversely, if you save this up initially, you would be working on a spending budget which is the whole point of this spreadsheet.

Set a target for you to achieve by the end of the year, 6 months from now. 25% of your pay multiple by six. That will be your target. Work towards it. Never mind if you cannot achieve the desired amount. The objective is to get you, to save some money instead of spending everything. Review your worksheet and target goal semi-annually to achieve a sizeable savings! With some cash in hand, then maybe you can start looking at investments or opportunities to grow your savings instead of letting it sit in the bank’s safe.

Remember it will be extremely difficult for the first six months, but with much determination and discipline, I think it is very much possible and achievable.

Good luck! Nothing counts unless you start taking action today!