The Simple Strategy to Save Money Every Month

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Why Do I Need to Save?

Do you look at your bank account every month and wonder “where did it all go?” or “why am I not saving any money?”

Your income comes in every month or fortnight, you go about your daily life paying rent, buying groceries, paying bills and treating yourself occasionally to a night out or a shopping spree, but then as time goes by it seems that no money ever gets saved.

You may think that you’re not spending that much money, but in reality, if you don’t look at where your money is going every month, the little expenses can add up quickly and eat away at all your hard-earned cash.

When it comes down to it, you need to be intentional about saving money.

There are a lot of reasons for why creating a budget and savings plan, and I mean actually looking at your bank and credit card statement and writing out how where your money went, can change your spending habits.

I’ve found that making a savings plan helps me to understand where my money goes every month and also allows me to set limits in luxury spending categories, such as shopping, eating out or taking taxis instead of public transport.

And in my opinion, the most important result of creating a savings plan is that you become in control of your money, instead of your money being in control of you.

 

Subscribe to the blog and receive a free copy of my Budget Creator Workbook, which is a resource for you to use after reading this post.

 

The Steps to Create a Budget and Savings Plan

So here are a few tips for creating your first budget and savings plan:

• Income: First note how much net income (after taxes) you bring in each month. (See Figure 1 below for example)

 

• Spending: Create your spending categories such as as rent/mortgage, food, bills, transportation, etc. I recommend using a spreadsheet or a personal finance software such as Personal capital or Mint. Make sure you have a category for every expense, even if one category is “Miscellaneous”.

 

• Review: Look at your bank/credit card statement and total up how much you spent in each category last month, or use Mint to total them up for you. Include every purchase!

 

• Savings: Based on your spending and what you believe you can achieve, set a desired amount you would like to save each month. I would recommend you aim to save at least 20% of your net income (after taxes) each month. Shooting for 40-50% is even better as it can get you to your financial goals even faster. However, everyone has different lifestyles so it is up to you to make this decision. Take this percentage and multiply it by your income (% x net income). This is figure is your savings goal.

 

• Set Goals: You already have your savings goal, but you also want to create spending goals. Basically, to make sure you don’t spend too much each month in certain categories (i.e. shopping, eating out, etc.) Next to each spending category, write out your goal limit for the month. This is the amount that you want to spend or less in that category on a monthly basis. Let’s say you don’t want to spend more than $300 eating out at restaurants per month. Then this would be your category limit for “Restaurants”.

 

• Final Review: If your spending goals are realistic, if you subtract your total spending from your income, the leftover amount should be as much or greater than your savings goal

 

Figure 1

Now the most important strategy in setting and sticking to a budget:

• Pay yourself first! This is the most important factor when creating and executing a savings plan. Each time you receive income (paycheck, bonus, dividends, etc.), you should take a percentage (ex. 20% if you want to save 20% each month) and immediately stash it away for savings. It takes self-control and consistent monitoring of your progress to keep your hands off that money, but after a few months, it will become a habit you stick to.

 

If you set aside your savings each month as soon as your income arrives, then technically the rest of the money is yours to spend as you wish. Don’t worry about constantly monitoring your budget, because as long as you are saving, it doesn’t matter if you spend a bit more at restaurants this month than last month. Sticking to your savings plan is the most important goal.

 

• Monitor your progress: I recommend using a personal finance software, such as Personal capital or Mint, to stay updated on how much you’ve been spending and in what categories. If you go on a shopping spree and spend over your budget for the month, you’ll be reminded you to hold off on that new pair of shoes until next month.

 

Hopefully these tips get you started. I’ll be putting together a more in-depth tutorial in the future, but in the meantime, try it out for yourself!

 

 

Don’t forget to Subscribe to the blog and receive a free copy of my Budget Creator Workbook, and as always, please leave a comment or send me an email if you have any questions!

 

NYPFGuy