If you have made a determined resolution to improve your finances this year, then our 2012 Money Manifesto will help you to chart the course.

Last week we looked at the fundamental principle of budgeting, indicating that it was crucial for you to be aware of all your expenses, plan for your spending needs for an entire year, and make the right choices with your money.

Another essential practice required for money success is saving. Saving is the act of putting aside some of your money instead of spending it to buy products and services. When you save you should not be intending to go back for the money a few days later to pay bills; this money should be left to accumulate over time.

Is saving still relevant today?

Unfortunately, while most persons followed the wisdom of saving in the past, too many ignore this vital habit today. This disregard stems from a general unawareness of the importance of saving, having insufficient funds to save, or the view that investing, the active use of money to generate profit, has more significance for wealth creation.

One key purpose of saving is to put aside money for a rainy day. Our Money Manifesto pledges, “I will focus my initial saving efforts on building up a fund to help protect me against possible emergencies such as illness or job loss. I will continue until I have saved at least three to four months of my living expenses, and I won’t use this money for anything except a real crisis.”

Your budget can help you to determine how much money you should target to put aside for your emergency fund. Add up all your basic monthly expenses such as housing costs, utilities, food, transportation and children’s upkeep. Although it is recommended that you put aside at least three months’ living expenses, in today’s economy, I would suggest that you aim for six months’ worth.

In addition to creating a lump sum for emergency use, saving will also allow you to develop a disciplined attitude with money. Many people’s consumption patterns dictate that as money comes in, it goes right out again. Saving changes this negative relationship with money as it encourages you to focus on amassing money instead of just spending it.

Is saving still realistic today?

In a perfect world, we all would be saving regularly to build comfortable rainy-day accounts and abundant nest eggs. Given the current economic realities, with the rising cost of living and decreasing pay packages, many people find it difficult to meet even basic expenses. Does it make sense to strive to save in these tough financial times?

The Money Manifesto makes a solid commitment to the act of saving by declaring, “I will commit to accumulating money instead of just spending it; so my first budget expense will be my own savings. I will make my savings automatic by setting up a monthly salary deduction or standing order to put money into a separate account.”

This pledge takes into consideration the key steps in creating a consistent savings plan. First, it’s vital to make the decision to pay yourself a portion of your earnings before you pay others. Secondly, you must determine a regular amount that should be saved every month. Finally, practise the discipline needed for success by making your savings automatic.

How is it possible to save if your earnings are inadequate or non-existent? The Money Manifesto provides a solution: “I will find and save coins every day if I have no source of income.” Put the laws of accumulation and attraction to work by putting aside loose change every day; do this simple activity for at least three months, and you will see positive developments in your finances.

Is saving still rewarding today?

Some people dismiss the practicality of saving because of the low interest rates available in the financial market today. A common question asked is: “What’s the point of saving when you may only receive two or three per cent return on your money?” Is it better to just enjoy what your money can buy, instead?

The old-time Jamaican proverbs ‘every mickle mek a muckle’ and ‘one one coco full basket,’ are still applicable in today’s economy. If you add together tiny amounts of any item, it will eventually get bigger; small, consistent savings with interest added can still help you to amass a worthwhile lump sum over time.

Can saving J$50 a day make a difference in the long run? After one week, you would have J$350 on hand, and after a month your total would be about J$1500. If you saved that amount every month in a financial institution and earned a net interest rate of three per cent over the next 20 years, you would have created a lump sum of nearly J$500,000!

Learn how the combined effects of time and compound interest can boost your efforts to create wealth. Download a savings calculator at www.financiallysmart.org and input different amounts and interest rates to see how you can build a nest egg over time. Next week, we will continue to expand on the other elements of our 2012 Money Manifesto.

Copyright © 2012 Cherryl Hanson Simpson. No reproduction without written consent.

Originally published in The Daily Observer, January 19, 2012

Read another article about Building an Emergency Fund:

Are You Prepared For An Emergency?

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Cherryl is a money coach and business mentor, and founder of Financially S.M.A.R.T. Services. See more of her work at www.entrepreneursinjamaica.com and www.financiallysmart.org. Contact Cherryl