For a lot of people, setting and sticking to a budget can be incredibly difficult. Others find it relaxing to know exactly what they have to spend each month. The great thing about budgeting and saving money is that there is no one set way to go about it. Test each of the three following methods to build your savings with a monthly budget and see which budgeting strategy is best for you.
1. Work Toward a Specific Savings Goal
This is a fairly standard method of increasing savings. If your monthly expenses don’t tend to vary much or if you have a set savings amount in mind, this method can be great for you. First, set your savings goal and then give yourself a time frame. That should give you the amount of your income that you need to set aside each month to reach your goals. For example, if you want to save $5000 in one year, you need to set aside about $416 each month (or $96 each week). Be realistic.
Don’t try to save more money than you’re earning and don’t short yourself on time or you’ll only become stressed and you’ll increase the chances that you won’t stick to your monthly budget and savings plan. Determine your monthly expenses at the same time you calculate your savings goal so you can be sure your goals make sense.
TIP: If you have any debt, you should work toward paying that off first. Either build in a monthly debt payment directly in your budget as an expense and/or set specific debt payment goals just like you would with your savings and work toward those each month. You can calculate your debt and give yourself a timeline to pay it off just like you did with your savings goals.
2. Set Aside a Percentage of Excess Cash
This method is a little more involved and granular, but is very adaptive or reactive to incomes of all sizes and incomes that vary each month. It can also work great with a personal reward system to inspire you to save more. The first step is to break down your expenses. Start by determining set expenses, like your rent or mortgage and any subscriptions you have – anything that costs the same amount each month. Next, set a budget for varying expenses like groceries and estimate or average out any varying expenses you don’t have much control over, like utilities.
Figure out your typical or average monthly income. This will give you a general idea of how much you spend and how much excess income you have that you can afford to save each month. Figure out what percentage of your excess income that you want to save for what purpose. For example, maybe you want to save 50% of your excess income for emergencies or building wealth, 25% for traveling, and 25% for paying off debts. You can fill in specifics as you go each month. At the end of each month, put your actual income in one column and total up all of your actual expenses to get a specific excess income amount and savings number for each month.
3. Save It Straight from the Paycheck
If you’re the kind of person who can’t help spending money in your checking account, the key is to not have a lot of money in your checking account. You can do this in a variety of ways. If your savings involve something like retirement goals, start an IRA and take money out each month directly from your paycheck. If it never deposits into your account, it’s more likely that you won’t even notice it not being there.
Other ways you can sneakily build your savings include setting up direct deposits into a high yield savings or investment account each month. Scheduling them right after payday will help keep you from spending the money since it won’t be sitting in your checking account as long. You can also use third-party apps to save money on each purchase – some apps help you find the best deal on every purchase, some offer cash back programs, and some round each purchase and invest the extra change. There are lots of ways to save, even if it’s not your strong suit.
Budgeting is a very personal endeavor. Find out which method works for you and then stick with it! Some months are going to be harder than others, but if you take the plunge and start, you can build wealth and increase your savings account, little by little.