One of the most common New Years Resolutions, after “lose weight” (Which is a terrible resolution anyway), is to “save money”. But what does it mean to save money anyway? Buy less coffee? Go out for dinner less? Cancel that gym membership? Nah- it’s about checking out your income and cash flow, and reflecting on what changes you can make. Budgeting is one of those life skills that often go ignored until we’re in a time of financial crisis. But we should all have a budget plan!
Saving money is more than just putting away some cash in a piggy bank. You need to burn set goals, prioritize spending, and then put away. And you can’t do any of those things until you take an honest look at your income and out flow. (Check back on this post about saving money during the holidays)
- First thing’s first, we need to get an accurate overview. Open up your bank account app and write out every single direct deposit and auto payment. Write it all down on paper to start. You might opt to print out the past 3-4 months worth of bank statements. Once you establish a budget, you can convert it to a spread sheet. But first you need to see how much money comes in each month, and how much you’re spending, and this is best done on paper where it can all be laid out in front of you. I like to color code at this point. Determine your average monthly income. Then assign cash flow into categories like utilities, groceries, travel, dining, clothing, etc. The reason you need 3-4 months worth of data is to determine an average. One month’s numbers will not show you the habits.
- Set your fixed expenses to autopay. These expenses are the same, or similar, amount each month and can’t be skipped. They might include rent, utilities, loans, car payments. Setting these to autopay will make sure they’re paid at the front end of the month, and give you an accurate idea of how much is left for flexible spending.
- Look for subscriptions. Sometimes when we subscribe to services with a small payment, we forget they exist. Make a list of all of these subscriptions, such as Netflix, Spotify, Pandora, Peloton membership, Audible, Kindle Unlimited, cloud expansion, Lightroom, Amazon Prime. Seriously, there are so many subscriptions under $10-15/month that we might not even remember. Budgeting is about being honest with ourselves, and decide which subscriptions we actually use, and which might be better off canceled for the time being.
- Check for Utility Outliers. Often times we ignore the utility bills (like water/sewer and electric) because they are non-negotiable. You can’t live without them. But how do you know if you’re paying the right amount? At least twice a year, pull up your utility usage and make sure that the bill stays fairly consistent from month to month. If it goes up one month, does it make sense? Sure, your electric might be higher in the dead of winter and the heat of summer. But how much? Compare the monthly bills to last year, and audit the amounts. Last year I had a water leak and only figured it out because my bill doubled one month, and then tripled the month after that. Don’t let your money go down the drain.
- Set a Savings Goal. Start with an annual goal- how much do you want saved by the end of the year. Is it a dollar amount, or do you want to be able to purchase an item or trip? Give yourself a deadline. Then work backwards to set up monthly goals, taking the holidays and dry seasons into consideration. From there, determine how much money you need to put away from each paycheck to hit that monthly goal. Is it reasonable? Do you still have money going into your general fluff fund for life expenses and emergencies. Don’t put more into savings than you can. Consistency is more important than high initial volume. Generally, 20% is an attainable savings goal.
Once you write out everything coming in and going out of your bank account, as well as setting your Savings Plan, then it’s time to write up an action plan. This is when you can use a fancy spreadsheet, if you wish. Decide exactly how much you want to allow yourself for extras and fun, and where the left overs go each month. Don’t let monthly “extra” cash carry over- move it to a savings account! Start each month with the same amount, so you can stay on track.
Bonus Tip: Knocking out credit cards. Paying off credit cards does a wonder of good for your budget. The discussion of when to use credit cards, or how to use them effectively is reserved for another blog post. But in the meantime, here are some credit card payoff techniques. Don’t forget, if you have good credit, you can call your credit card company and ask them about a lower interest rate. You can also inquire about refinancing, or rolling the card onto a new one with a 0% APR.
- Snowball Effect: Paying the minimum on all of the cards, then throwing extra at the card with the lowest balance. Once that card is at zero, use that card payment to chip away at the next lowest balance.
- Avalanche Technique: Paying the minimum on all of the cards, except for the card with the highest interest rate.
- Highest Payment: Whichever card has the highest monthly payment should be the priority. Tackling that card will reduce the payment, which will reduce your overall monthly payments.
I hope these tips are helpful. Let me know if you want more financial blog posts, or general ways to save money. As a single mom, every penny counts, and I’m sure y’all feel the same way.
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