To start a savings plan can sound like a dream, a wish, or even something out of a fairytale book for some. But in fact, even if you are barely making ends meet right now, you can still begin to save money.
<As I was helping a friend of mine with her budgeting and creating a savings plan for her, she cried to me at the thought of starting her savings plan. “How can I save money I do not have? I barely have $30 at the end of the week, after paying for everything.” Feels familiar? It is ok, you are not alone.
How much do you put away from your checks to go towards savings? 10%, 20%? How much should you be putting away, and how can budgeting help?
Every single January you will see it all over Facebook… I will start a savings account. Then throughout the year, you can see how they were not committed to themselves or saving money. How will this year be different for you? Will you just be saying the words or will you be intentional and implement weekly and monthly tasks to ensure you are indeed and in fact saving money.?
How Important is a Savings Plan?
Everyone is familiar with the importance of a savings plan. It dictates what kind of car you can afford, how big of a house you can get with a down payment, what you can offer your children for college.
It will determine your future, I know you can not see it now, but it will happen.
Just about less than 30% of individuals have less than $1000 in their savings right now.
That is it. Less than $1000. That is just about $20 per week in a full year.
Budgeting is a lot like dieting, people try to make big massive changes to “shock” their system into compliance. Except it doesn’t really work. We stick to it for a while but eventually fall off.
Instead, I suggest implementing a transition budget. This is where you set up where you want to be in six months or a year and gradually move your budget towards that goal.
If you want to save $100 a month but currently save zero, why not try saving just $20 this upcoming month. Then $40. Then $60. Then $80. And by the middle of the year, you’re going to hit that $100/month goal far easier than if you try to cut $100 from your budget right now.Jim, Wallet Hacks
How Much do you Save Per Check?
There is typically a 50/30/20 rule when it comes to determining breaking up finances. This rule ensures you are saving enough money for what is necessary, and are not spending too much of your money on bills.
The 50% Rule
The 50% rule determines how much you should be spending on bills and food. Depending where you live, this may be a difficult task. If you are spending over 50% you may want to change some spending habits.
Maybe you don’t need an hour long shower, but a 10-20 minute shower. This can save you money on your water bill. Or, instead of keeping the water running while you are brushing your teeth, turn it off! If you are not using it, that is money falling down the drain!
Maybe change the grocery store you shop at, or shop the deals and buy generic! Majority of the time generic tastes better, has less chemicals, and is cheaper too!
The 30% Rule
Within this rule, 15% is for all fun activities you plan to take part in. This includes the kid’s soccer league and weekend dates.
15% is typically known as the short-term savings category. This is for short term plans that will happen within the next month, to month and a half. This could be putting new tires on your car, or going to take a weekend trip up north.
When you combine this together, you get 30% to use for these two particular things. 30% of a check is a good amount to be put towards fun activities with the family and shorter term plans.
The 20% Rule
This portion of the rule is the most important for future financial stability. 20% of every check should be put away into savings. This is the long term savings. Savings for retirement and in case of being laid off.
This is the portion that people forget about. Most of the time, individuals will choose to not save, and instead will use it as ‘fun money’.
On average, even teens can save up to 5k a year. Take an average job. Take Target for example, since they have the same minimum wage in the country. $13 an hour. Say, the teen works 30 hours a week because of college.
$390 a week, $1,500 a month before taxes.
If you multiply that by the amount of months in a year, this teen will make 18,000 a year before taxes.
The teen will pay about $7,500 towards their bills, like their car, and college. $3,700 will be spent on what they desire, between Christmas gifts, and living out their college lives.
$3,300 will be put into savings every year. This is just 20% of the money they will receive in a year pre-tax.
Where to Begin When It Comes to Saving Money
You want to begin by changing your mindset about money. If you think money is root to evil, it will be difficult to save money and will make you resent it when it comes to paying bills, including yourself.
Like everything else in life, it’s your mindset that makes the difference. Stop thinking about your money and your future like an emergency is inevitable. Instead of an “emergency fund” set up a “prudent reserve” and put 10% of every source of incoming money into this account. As this fund grows, you can get excited about having money that you know is there to support your future, not money waiting to be spent on a tragedy.Erica McCurdy
Start off with a number you can be comfortable with, not too high or low. This number must be realistic as well. If you try to save 40K per year but only take home 35K, you will never achieve your goal.
Start with how much you take home per pay period, after taxes. This is the amount of money you have to work with to pay for everything you do all year long. If the amount varies, take a look at the last four paychecks if paid bi-weekly. What is the lowest take-home amount you had? This will be the number to work with. And for times where you made more, you can add more to your savings account.
Next, you will add up your survival amount per month. This includes rent or mortgage, utilities, insurance, household (food, hygiene items) needs, and transportation.
Monthly Survival Expenses
- Rent – $1,700 per month
- Water and Trash – $200 per month
- Electric – $150 per month
- Household Needs – $1,200 per month
- Car Insurance – $175 per month
For your survival needs, you will need $3,425 per month. This does not include pets, recreation, or anything extra. Literally your immediate survival needs. This is also based on a person who rents and does not have health insurance.
Based on these numbers, you will need to take home, after taxes $41,100 per year, just to survive. These numbers are based on my friend’s income, who is a single parent of four children living in Florida. Of course, yours will be different, these numbers are only to show you how to figure out how much money you have left after paying for your basic survival needs.
Doing this exercise will also help put things into perspective for you when it comes to evaluating your yearly income and how much you need to increase it, to be more financially solid. Normally we just look at what we make per month and what goes out per month, not many take the time to do the additional homework of writing down your yearly numbers.
If you know that you would need $41,100 to survive per year, you would then look into better job and career opportunities that will increase your income.
Now that you know what is going out immediately, now it is time to focus on paying you and your investments. If you wanted to save 10K per year, you would need to put $193 into a secure savings account, per week. This amount would not be realistic in the case of my friend, after paying out her immediate bills, she will only have $8,900 to work with. She however can save $5,000 for the year and have the rest of the amount for other purchases needed throughout the year, so would leave herself with $3,900 to work with throughout the year.
Then Set Yourself a Savings Goal. Remember the above information, do not set a goal too low or too high, be realistic. You will need to commit to a specific amount every single paycheck to place into a savings account, which you will not touch. I know most will tell you to save 10% to 20% per check, but for some, this can be hard to figure out numbers-wise. They get hung up on trying to figure out percentages, especially for those who work different hours per week or for someone who has a hard time with math.
Here are some examples to help you figure out which amount you will commit yourself to. This is for those who are saving 15% of their take-home pay.
- $20K Per Year – $3,000 or $58 Per Week
- $25K Per Year – $3,750 or $73 Per Week
- $30K Per Year – $4,900 or $95 Per Week
- $35K Per Year – $5250 or $101 Per Week
- $40K Per Year – $6,000 or $116 Per Week
A good way to “force” yourself to save money is to set up automatic transfers to a savings account through payroll deduction. It’s a good way to build a savings account because there’s a guarantee you’ll be saving money regularly. This works because there’s less risk that you’ll be spending the money on unnecessary items.Chayim Kessler
Start off with an amount you can easily achieve in the first year. This will show you how easy it is to save and reach those goals. It will help you develop a healthier mindset when it comes to money. Using the numbers above, I suggested to my friend to start off with a savings goal of $3,000. This means she will need to commit to $250 per month. I then told her to include this payment as if it were one of her survival bills.
If you think of saving money as a survival bill, it will prompt you to ensure this bill is paid every single month. If you get paid bi-weekly, this means you will pay your savings bill of $125. So now your monthly survival bills will include saving money for your future needs.
Other Ways to Increase your Savings
What are you Paying too Much Money For?
Are you spending too much in general? Are you buying without checking for deals, sales, discounts, and coupons? Are you buying during peak season? Are you buying branded names?
Have you incorporated reduce, reuse and recycle strategies to help you save money? Amanda gives some great advice on this.
“Ready to ramp up your money-saving skills? Don’t trash your ratty cotton terrycloth bathrobe. Cut it into pieces with sewing shears (borrow one instead of buying it) and clean your home or office with “recycled” custom-sized dust cloths. Let babies suck on the soothing fabric when they’re teething. By the way, you can wipe drool off baby faces with those gentle terry cloth rags, too. When you’re feeling more ambitious, turn the salvaged fabric into low-cost quality bibs. Wipe dirty little faces, backsides, and hands clean when you’re away from home, too.
Pack a few dampened squares of recycled terrycloth into seal-tight plastic bags that you can safely keep in your baby bag. Add a tightly closed sample bottle of liquid soap that you can buy from pharmacies and grocery shops, or receive in the mail. No need to buy expensive baby wipes. Lower the cost of keeping kids clean with can-do ideas that only cost pennies and a few minutes of your time. How much money have you saved with those ideas? More than you’d guess.” Amanda Clark
The money you save by doing things like couponing, deal grabbing, discount grabbing, etc., you are not allowed to spend that money. Make that commitment now to yourself. That money will be placed into your savings.
Use a Money Savings Chart to Help You Stay Focused
No matter how you keep track of saving money, make sure you are tracking it. You want to watch it increase to offer yourself that reward. Yes, watching your savings increase is an actual reward. You can use apps or even printing out things like the Penny Challenge or the $5 Plan or Other Savings Charts to assist you with your goal. You can download these types of charts for free by clicking that link.
What Are Your New Year Savings Plans?
What questions do you have for me? How can I help you get started?