Spend less and save more? If only it was that easy. Most people use a very simple approach to this problem. They find a job that pays better and / or cut their expenses quite radically. Yep, just go out and find that 6-figure income position. And just like any other long-term investment strategy, you should have a plan for investing in yourself by acquiring additional skills using an education plan. If you can offer an employer more skills, you will be of more value to the company and more eligible for increased responsibility which usually equates to more money.

On the other hand, it becomes pretty obvious that if you cannot change your salary in some drastic manner, your best approach is then to aggressively manage your money.

Create a Budget for Success

Managers who create budgets for their businesses know there is a mistake often made by less successful managers. Those other managers spend seemingly endless hours creating a budget for approval by a board or another party and then once approved, they put the budget in a file cabinet until the next year's budget needs to be created.

Successful managers don't just put their budgets in a file cabinet; they constantly review their budgets to ensure any variances are within their expectations and under control. Because they are able to use their budgets to identify any potential business problems; their budgets become a tool for success, not just another exercise in accounting.

Become More Responsible

Adhering to your budget is easier if you are realistic when you create it. People who create budgets do make occasional mistakes in forecasting actual expenses, but they later modify those budgets to conform to the actual situations. You might find yourself doing the same occasional fine tuning of your budget.

Budgets have three basic elements that any person can use; income, fixed expenses, and variable expenses. While the budget creator decides how much detail is necessary, major items should have a line devoted to each of them for easier analysis.

*Income is a pretty obvious category and includes all your planned income during the year.
*Fixed expenses are categories like rent, insurance, credit card interest, and other items that do not vary each month.
*Variable expenses include items like gas, groceries, clothing, utilities, and vehicle maintenance.

It is sometimes tempting to think of your credit cards as an option when you want to buy a new couch or go on vacation. But, the interest rates will soon become a monthly burden on your income to the point that your couch might cost you twice as much as if you had saved the money and paid cash. Only if credit cards are paid off each month can the onus of monthly interest expenses be avoided.

If a budget includes an expense category for a monthly savings account deposit, an emergency fund can be built to protect you in a time of unexpected hardship.

Avoiding Catastrophes

While there may be a difference of opinion on the specifics, everyone agrees they should have some money set aside in case of emergencies. Without protection from a catastrophic situation, you could end up liquidating your assets and paying penalties for their early liquidation in some cases.

Ideally, enough money to cover your full expenses for six months should be enough to avoid potential financial ruin and the heavy use of credit cards that will generate hefty interest payments. Make sure all your expenses are covered like mortgage or rent, medical insurance, food expenses, and, yes, even some money to cover entertainment expenses. Budgeted entertainment in case of an emergency does not mean this fund should be used for non-emergency purposes. This is not a vacation fund, it is an emergency fund.

Make sure your emergency fund is liquid and also earning you the highest return on your investment. As this fund grows, you can reevaluate how it is invested and diversify into other highly liquid investment types.

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