Let’s talk about how to save your money, on the daily, monthly, and long term scale!
Although I'm not a client, I recently chatted with a @JohnHancockUSA financial planner to make sure that my budgets were in check (especially since I just moved to an uuuuuber expensive city).
Here are some general tips we covered, as well as what has personally worked for me!
Step 1: Saving money begins with your mindset.
The word “budget” just sounds… not fun. It’s restrictive. It means you can’t have fun or be spontaneous. Right??
It’s important to shift your mindset from thinking budgets = restrictive. I know, it can really feel that way. But instead, I find that focusing on what I AM doing and CAN do with my saved money is way more empowering. It’s a plan I get to put together to strategize how I want to spend my money. And the best part is… it’s totally up to me what I spend my money on. For example, I love traveling. So I spend a lot of money on it. My budgets help me remember that so the next time I want to buy clothes or expensive concert tickets, I just ask myself the question, “Is this more important to me than traveling?” If yes, then I go for it. If not, then I set it aside".
Budgets don’t mean that you stop spending money (on fun things). It just means you have the chance to prioritize what financial goals are more important to you.
Step 2: Get serious about your budget.
I highly recommend reading the first and second post in this series to get deeper into the savings mindset. If not, here’s the short version:
Saving money early is good. The more you save (in proportion to your income), the earlier you will be able to retire or be financially independent.
To set my budget, I use an Excel spreadsheet. Trust me, it sounds way more complicated than it is. Basically, you have to try to inventory:
What are big things you are saving for? — i.e. retirement, vacations, houses, new sound system
What are you spending money on? — i.e. necessary monthly expenses like rent, food, medicine
What are little things you want, but don’t need? — i.e. clothes, fancy vegan cheeses, etc
What are fun life things you want to cover? — i.e. restaurants, entertainment, shows, etc
When you’re ready to start putting it all down, check out this Excel Spreadsheet and copy it to make your own personal budget sheet.
Having things in spreadsheet form is super helpful. A lot of times, it’s just your best guess, but when I write things down it really helps remind me where exactly my money is going and WHY. I think about whether or not I want to save for something AND I think about how much to save… both of which reinforce my motivation for sticking to it on the long term.
Not sure how much you want to save? Folks in the personal finance space generally recommend the 50/30/20 budget for smart money management: “Devote 50% of your income to necessities, 30% to wants and 20% to savings. If you find one of your allocations exceeds these percentages, make some adjustments to fit the formula”. (source: https://www.investopedia.com/ask/answers/022916/what-502030-budget-rule.asp)
Step 3: Set up your direct deposit*
THIS STEP IS VERY IMPORTANT. It’s like magic. I think Hermione would be very proud of me.
*IF you are able to have your checks direct deposit, don’t forget this step. I set up separate bank accounts for things I’m saving for: House, Travel, 401k (they are all housed within the same overall account at Capital One). When it comes to set up direct deposit with my employer, I tell them to NOT deposit my whole paycheck into one account… but rather certain amounts into certain accounts.
For example, I’ll do:
$500 into my “House Fund”
$100 into my “Travel Fund”
$100 into my “Roth IRA”
Remaining amount into “Checking Account”
THEN the only account I use for day-to-day spending is in my checking account. I know that all the money I need to save has already been siphoned off, so I don’t need to worry about it. I’ve essentially already budgeted, so whatever is leftover… I can spend freely.
It’s a small thing, but this way it takes the burden off of you for keeping track of everything yourself. The less you have to think about it, the easier it will be to get used to and turn into a habit.
If you don’t have direct deposit, don’t fret. You can also do this part manually yourself. But basically this step is just finding ways to make saving happen automatically for you. You got other things to worry about ;)
Step 4: Use tools to hold yourself accountable.
Once you have your budget all squared away, it’s time to use tools and technology to keep you accountable! Otherwise, it’s just another piece of paper or magical spreadsheet in the internets that you’ll quickly forget about.
My favorite tool to use is Mint. I link up my accounts and can easily monitor my spending, trends, and budgets. If I go over any of the limits I’ve set, Mint notifies me that month.
Whatever tool you use, play around with it and make sure it works for you and your lifestyle! The most important part is that you feel motivated to pay attention and care about it :)
Step 5: Adjust, if needed!
You won’t get it perfect the first time around. Promise.
And that’s completely okay! The spreadsheet is meant to be actively updated and you can see in real time what these updates will do to impact your bottom line. If you just finished up a month and had a lot of spending in a certain category… ask yourself: Is this going to be a normal thing? Or was it just a one-time thing? Where did you save? What did you learn? What would you do differently?
Generally, I like to recalculate the entire budget once or twice a year (once I have more than 1-2 months of data).
Well, that’s generally it!
This whole process should take anywhere between 1-3 hours, depending on how much you want to budget for. YOU GOT THIS. John Hancock and I are cheering for you!
Happy Saving! <3