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Personal Budget and Saving Tips

From RBC Bank

RALEIGH, N.C. – Feb. 17, 2010 – Pay yourself first. Harness the power of compounding. Keep three to six months of savings on hand for emergencies. If those three statements seem as unrealistic for you to do as “fly to the moon,” then you may need to develop a little self-confidence in your fiscal plan.

You First
First things first. Many wonder how it’s possible to pay yourself first when your creditors seem to have such big, recurring appetites each month. The answer is, start small, but start. You don’t have to reserve a lot of money for the “pay yourself first” category, but if you take the amount of money you typically spend once a week on lunch and set that amount aside in a savings account for a set period of time – say 90 days, you will accomplish three important things:

  1. you will prove to yourself that you actually can save money
  2. you will begin to earn interest on your savings – and as a result will have accumulated a little more than if you had put the money under the mattress.
  3. you will have made a start on building -- or rebuilding -- your rainy day fund.

At the end of 90 days, you can evaluate whether savings should be a larger amount of your weekly or monthly budget and you can adjust accordingly with the confidence that you are up to the challenge of saving.

Compounding Magic
It is very important to remember that it is never too late to start saving. If you are 50, compounding is just as powerful as it is for 20-year-olds. And let’s face it, most 20-year-olds are not likely to look at an activity called “retirement” and think it is very relevant to them. Too bad. For 20-somethings, the cumulative effect of even modest savings contributions (plus interest) makes a relatively small amount of savings grow surprisingly quickly into a substantial nest egg.

Whether you are 20 or 70, the power of compounding works the same way. For older savers, the shorter time horizon means the cumulative positive impact will not be as impressive as for younger savers. But for anyone at any age, it is never too late to start saving and to start realizing the magical power of compound interest for long-term goals.

Rainy Day Fund
Once you are in the habit of saving and have started seeing your principal and interest working together it is important for you to understand that some savings are long-term and some are short-term. In other words, your emergency fund and your retirement fund are not the same thing.

When you are paying yourself first, you might want to consider dividing your “personal payment” into two buckets. One portion goes for long-term savings such as retirement or a future house down payment, and one portion goes for the emergency fund, the rainy day fund.

The current economy makes having an emergency savings fund more important than ever before. In a slower economy, it can take longer to find a job – or a better paying job – than it might have in the past. So, having a fund to fall back on in the case of a job loss or surprise expense is especially critical now.

Most experts advise that you should add to your emergency fund until you have built up enough savings to cover your living expenses for three to six months. While that can seem a little daunting, even having a little money set aside can make the difference when you find yourself facing an unexpected car repair, medical emergency or similar unbudgeted expense.

Budget with Savings in Mind
You know when you build your budget to take into account your current take-home pay and your current monthly expenses. But remember to add savings to the mix.

Pay yourself first. Put your savings into one or more interest-bearing accounts. Make sure that you are looking long-term but are also ready for short-term cash needs. Starting saving today will put you in a position to weather short-term storms and prepare you for long-term success.

This article is provided by RBC Bank. The information included in this article is not intended to be used as the primary basis for making financial decisions. RBC Bank does not provide tax or legal advice. Please consult your own financial, tax or legal advisor.

About RBC Bank
RBC Bank, headquartered in Raleigh, N.C., offers a wide range of financial services and advice to individuals, businesses and public institutions throughout the Southeast. RBC Bank’s network includes more than 430 full-service banking centers in six states (Alabama, Florida, Georgia, North Carolina, South Carolina and Virginia), an extensive ATM network and telephone and online banking. RBC Bank is the 38th largest U.S. bank by consolidated assets, according to SNL Financial’s List of the Nation’s 50 Largest Banks, September 2, 2009. RBC Bank is a wholly-owned subsidiary of Royal Bank of Canada (RBC) (RY on the TSX and NYSE), Canada's largest and most stable bank as measured by assets and market capitalization. In August 2009, Global Finance Magazine ranked RBC as the safest bank in the Western Hemisphere. RBC is also one of the world's financial, social and environmental corporate leaders, having appeared on the Dow Jones Sustainability World Index every year since its creation in 1999. Additional information about RBC Bank may be found at

For more information:
Dorsey Landis
RBC Bank/(919) 788-6272