Saving money is already a bit of a challenge but when your bills and expenses eat up most of your income and money is already tight, it can be extremely hard to continue to put money aside each month. If your paycheck seems to disappear days after it reaches your account, saving can be the last thing on your mind when you are just trying to maintain and cover all your bases.
It’s no secret that saving is extremely important in the grand scheme of your financial success. Saving money can help you prepare for unexpected expenses or financial hardships, pay off debt, reach milestones like purchasing a house quicker or sending your kids to college, and help become more stable overall.
When I talked about wanting to save half of my income each month, I mentioned how the whole idea of being able to save half seemed like a fascinating concept that I’d never be able to achieve. Clearly I was wrong.
Whether you want to save 50% of your income or just increase your savings rate a little more, you need to create a budget that allows you to save more.
The Accuracy of Your Budget is Key
Creating a solid budget to withstand all your temptations and spending discrepancies is crucial. If you’re not a fan of budgets, you kind of need one in order to increase your savings rate. Even if your budget is just a sheet of notebook paper with a rough outline of your spending categories, that’s a start. No one said you had to be fancy.
I redo my budget periodically throughout the year or when things change. We recently moved so my rent has increased slightly but I’ve lowered a few other expenses as well.
Be Realistic
When you recreate your budget, it’s important to be realistic and 100% honest with yourself. For example, if you claim to be able to spend $0 on entertainment every month or just $20 on clothes and gifts when you know that’s not the case you’re only cheating yourself. What looks great on paper (or your spreadsheet) isn’t always the easiest to actually do.
Decide which variable expenses are more important to you and set a reasonable amount to spend on select categories. For the categories you don’t care about so much you can always enter a lower spending amount to increase the money you can save.
In my new budget, I added an extra $10 on a few categories like groceries, dining out, and household goods and toiletries just as a financial cushion in case I went slightly over budget. Slip ups happen and there are times when we don’t make the best financial decisions or go over budget. It’s very common, but being prepared is the best way to combat a budget failure.
Reduce Your Fixed Expenses
A lot of people talk about reducing variable expenses but forget to do anything about fixed expenses. Predictable expenses like insurance, utility bills, and rent/mortgage payments can be reduced to free up more money for savings.
You should never let your housing expenses take up more than 30% of your income to avoid becoming house poor. If your mortgage or rent is too high, you most likely won’t have much left over to save each month. You can always try to refinance your mortgage, move to a more affordable area or bring in a roommate to help lower housing costs.
Commit to reducing energy usage around the house and be mindful of your utility usage overall so you aren’t overpaying for electricity, water and gas each month. With insurance, you can always bundle to save money on your rate by obtaining auto, life and renters/homeowners insurance all through the same company. For your cell phone bill, there are so many quality prepaid options out there to use with a smartphone so that you can ditch the expensive contract cell phone service. I currently use Republic Wireless and I love it!
Start Building a Slush Fund
When you have to pay extra for something throughout the month and you don’t want to use credit or withdraw from your emergency fund, the money usually comes out of your savings contributions for the month. Extra expenses throughout the month often translate to a lower savings contribution but it doesn’t always have to be this way.
A slush fund or cash buffer is your first line of defense when extra expenses pop up or you miscalculate your spending for the month. If you have an extra $20 or $50 here and there, you should definitely set it aside to use in non-emergency spending situations.
My ‘Save Half’ Budget
By utilizing all of the tips mentioned above, I created my new and improved budget that will allow em to save 50% or more of my take home income each month.
Living Expenses
Rent $430
Auto Insurance $95
Healthshare $131
Groceries $160
Fuel $140
Bed $25
ComEd $80
Water: $25
Phone $12
Entertainment. $50
Dining Out $60
Clothes $30
Household $30
Credit Cards $150 (Include my tollway pass for the interstate, misc. purchases)
Slush $82
Total: $1500
Savings
$250 Emergency Fund
$140 Student Loans
$900 Car
$100 Car Savings
$50 Small Savings Goals
$100 Retirement
Total: $1540
Have you ever struggled to save when money was tight? How do you adjust your budget to increase your savings rate?
