Budgeting for Savings
There’s a line item in my budget that I’ve always struggled with – savings. This should be the easiest line item because it’s my money that I am putting away for myself. But I can’t tell you how many times I budgeted to save $100 from my paycheck but didn’t end up saving anything because other things creeped in to steal my savings from me. There are three things you can do to prevent this from happening. You need to make savings a priority, make it automatic and make it intentional.
Make it a priority
After you have figured out how much income you are expecting each month and then subtract your fixed and periodic expenses, the remaining money is for variable expenses and savings. If you earn $1,000 in a month and the expenses you have a legal or moral obligation to pay are $600, then you have $400 to spread between variable expenses and savings. Often, we worry about the variable expenses first and then see if there’s anything left for savings. I want you to start thinking about this in the opposite way. Decide how much you want to save, even if it’s a very small amount, and then make your variable expenses fit what’s left. So if you decide you are going to save $50 per month, then you would have $350 left to spend on variable expenses.
Let’s say your variable expenses were $400. That means, in our example, you would not have any money left at the end of the month to put into savings. This is where you need to re-evaluate your variable expenses. Even if you only find $25 per month to cut from your budget, you would be putting away $300 per year. Making savings a priority can change the way you view the money you spend on variable expenses like eating out.
Make it automatic
Most people prefer receiving regular paychecks, especially when they can be automatically deposited into their bank accounts. The way direct deposits ensure you receive your paycheck, automatic transfers to a savings account ensure you put away money you will need later. I prefer to set up monthly automatic transfers at a conservative amount that I know fits comfortably into my budget. Then, at the end of the month if there is any money left over, I transfer a little more to savings.
Make it intentional
It’s always easier to commit to a new plan when you have a goal set. With savings, there can be many goals and you can make a lifetime of fun out of trying to achieve them. The first goal, or intent, of saving money should be to store away 3-6 months worth of living expenses. Things happen in life that might hinder our ability to make the same money we are making today. People have babies, move to new states, go back to college, get sick, get laid off or pursue a new career. When there are so many possibilities of the turns life might take, building up an emergency fund that can carry you through the drier times will have a profound impact on your peace of mind. After your emergency fund, your goals should be much more personal. What exciting trip or purchase do you want to save up for? Perhaps you have some major home renovation projects you have been wishing you could get to. This is the time to write down your savings goals and get to it!
Savings should become a regular part of your budget and never put on the back burner. Make it a priority by putting it before variable expenses, set up automatic transfers from your checking to savings account and set those goals! You won’t regret putting money away for yourself, especially when that rainy day comes along.