06
Jul
11

Is Frugal the New Black?

Feeling the urge to splurge?

With longer days and stores looking to clear their racks of spring merchandise, the summer can be a tempting time to indulge. But given where account balances are today, you might want to consider cooling down your spending and heating up your savings instead. So rather than splurging on that designer purse, consider splurging on something that might be a little more worthwhile, like your savings.

President and CEO of Citibank’s Women & Co., Linda Descano, CFA, offers the following advice to help splurge on savings:

 

1.      Take a snapshot. Saving requires you to analyze, plan, organize and evaluate. But first, you should know the current state of your finances. Use this worksheet to help determine your net worth and cash flow.

 

2.      Set goals. View your savings needs as being either long-term (e.g., retirement) or short-term (e.g., home repairs) so you can better decide how to allocate your money.

3.      Make a “savings sacrifice.” Track your expenses for an entire month, then evaluate where your money is going. Recalibrate what you’ve come to view as a “must-have” versus a “nice-to-have.” You may have to make a “savings sacrifice” until you get back on track.

4.      Save something every month and build an “emergency” fund. Automatically put a set amount — no amount is too small — of every paycheck in your savings account. Aim to accumulate enough cash to cover 3 to 6 months of living expenses at a minimum, and set that aside for a bona fide household emergency. If you already have an “emergency” fund, it can’t hurt to keep adding to it, especially during a time of economic uncertainty.

5.      Pay down debt. It doesn’t make much sense to put money into emergency savings if you are carrying high-interest debt. Consider putting money toward paying down this debt first, while still adding as much as possible to your emergency fund.

 

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