One of the first things you must do when setting your budget is to identify your goals. Answer the following questions for each of the goal terms explained below.
Creating a budget and saving money isn’t easy. It takes a little practice and a lot of discipline. A good way to start is to develop a savings plan. Just follow these steps:
Step 1: Pledge to stick to your plan.
Step 2: Figure out how much money you have coming in each month. Add up your net income from your job and other sources.
Step 3: Work out how much you want to save. Divide the money into several different categories:
Step 4: Put your plan in writing. Track how much money you have coming in and how much you spend.
Step 5: Set spending limits.
Step 6: Adjust your plan as needed.
Your Savings Plan
A savings plan shows you where your money comes from, how much there is and where it goes.
Now take a look at where you spend your money. Do you overspend in several categories? By keeping track, you’ll learn about your spending habits. Then you’ll start to see ways to save.
You’ve finally saved your first $500. Now, where should you put it? It depends. You’ve got lots of choices:
Some options are riskier than others, some are more accessible and some will earn you more money. Before you put your cash in one of these investments, weigh these factors:
Liquidity means how quickly and easily you can take your money out of an account or investment and turn it back into cash. With some investments, you may have to wait until a maturity date before you can get to your money or pay a penalty for withdrawing your funds early.
Money in the credit union is typically insured up to $250,000 or more. If anything happens to your savings, money market or certificate account, your money will be replaced. U.S. Savings Bonds are also insured. If you invest in the stock market or buy mutual funds, this is not the case.
Risk and Reward
There is risk with mutual funds and stocks because no one insures your investment. If the stock price drops, you lose money. However, if the price rises, you may earn a large amount of cash.
Credit union savings accounts typically have little or no fees. Mutual funds, on the other hand, typically have management fees. Also, stock market trading fees are assessed when stocks are bought or sold.
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