Saving money used to be as elusive to me as finding Bigfoot. Apparently I’m not the only one, since 62% of all Americans don’t even have $1,000 in savings.
If there’s anything I’ve learned in my lifetime though, it’s this:
- Things will go wrong
- Things will cost more than $1,000
- Things will happen when it’s least convenient
- Things will happen when you’re least financially prepared for them
I found this out firsthand when we had to give up our home after it tried to kill our finances and after being stuck in a dead-end job that didn’t even pay all the bills.
Since then, though, I’ve kicked my butt into gear and found a way to save even though I hadn’t been able to before. This has been the single biggest revelation of my financial turnaround. Without my money savings plan, I’d probably be eating cat food from a cardboard box in a back alley by now. And while I do like tuna, I prefer it to be on sushi. 🙂
I won’t lie; I used to think that developing a good savings plan would be overwhelming. Once I dug into it, though, it was a lot simpler than I thought it would be.
In fact, I’m gonna let you in on a little secret: it ain’t rocket science. Which is good, because sometimes I spend a half hour looking for something that I’m currently holding in my hand.
I’ll tell you just about everything you need to know about developing your own money savings plan in this one single post—I promise!
- 1 Brew Up A Fine Money Saving Plan…Like A Good Craft Beer
- 1.1 Figure Out How Much You Have Left To Save Each Month
- 1.2 Start An Emergency Fund
- 1.3 Set Short-Term Saving Goals
- 1.4 Set Long-Term Saving Goals
- 1.5 Automate Your Savings
- 1.6 Save Money Automatically With Smartphone Apps
- 1.7 Check In With Your Savings Regularly
- 1.8 Bottom Line
- 1.9 What Do I Do Next?
Brew Up A Fine Money Saving Plan…Like A Good Craft Beer
Coming up with a good savings plan doesn’t happen overnight. It takes a lot of reflection.
You need to distill the essence of what you want your life to look like into your financial goals.
Create a recipe, get the right ingredients in place, and implement your plan. Let it sit and brew while you wait, and before you know it, it’s ready. Sit back on a hot summer day with a cold brew and enjoy the fruits of your labor!
That’s basically what we’re going to do here. I’ll show you how to start out with naught but an idea and turn it into something real and tangible that you can hold in your hands.
Keep in mind you can’t do everything. You can’t save for Learjets, mansions, round-the-world trips, gourmet dinners every night, and fully-fund your retirement. You’ll need to pick and choose which things are most important to you.
Related: You Only Live Once: The Roadmap To Financial Wellness And A Purposeful Life (affiliate link)
Figure Out How Much You Have Left To Save Each Month
When I made my first budget, I didn’t even have any money left over for savings.
Let me rewind that one again: I didn’t have enough money to save.
Raise your hand if you’ve been in this position before. If so, you have two problems you need to solve: your expenses are too high, and/or you don’t earn enough money.
It can be a bit blunt to hear the truth, but there it is.
Luckily, you’re not trapped! You do have the ability to earn more money and spend less. I’m not gonna lie; sometimes it might not be the most fun thing in the world (like giving up your car), but other times it’ll be super fun (like going to a conference or earning more money on your own than you ever thought you would be able to do).
Check out these blog posts for more information on how to earn and save more:
- This Just In: Shooting For Financial Goals Makes You More Tolerant Of Less Stuff
- Make More Money: A Fear-Busting Game Plan To Start Side Hustling
Start An Emergency Fund
Emergency funds sound about as exciting as when my grandparents used to tell me about how they had to use corn cobs for TP during the Great Depression.
I get it. They’re not the super-sexiest of funds, but here’s the key: they’ll save your ass from being broke as f@#k all the time.
I don’t know about you, but I don’t want to be broke as f@#k all the time. I’ve done it before; it’s not fun.
So, start an emergency fund. How much you save depends on a lot of things. Some people recommend just $1,000, all the way up to a year or more worth of expenses. Most people say you should have between three and six months’ worth of expenses, though.
If you need more help figuring out how much to save in your emergency fund, check out my post How Big Should My Emergency Fund Be?
Set Short-Term Saving Goals
Why short-term savings goals?
Why not? They’re easier, more tangible goals to reach. You can save up for these and pop them out faster than bunnies on fertility drugs if you work hard enough.
Figure out what expensive things you’re likely going to buy within the next few months up until five or ten years from now. For us, it’s this:
- Family reunion trip (July)
- Peru trip (September)
- FinCon trip (October)
- Car (sometime 2-5 years from now)
Now, divide the # of months from now until when you need the cash by. This is how much you need to save per month.
For example: let’s say I want to have $5,000 saved up for a car three years from now. I also already have $1,700 saved up so far, so I only need $3,300 more. That’s 36 months from now, so $3,300 / 36 = $91.67 per month. Let’s just call it an even $100 per month because my OCD radar is lighting up like a Christmas tree right now.
I highly recommend setting up a separate savings account for each of your financial goals within your bank account. You should be able to name them as well; if you can’t, then switch banks.
Why? It makes a world of difference in your mental mindset.
Rather than contributing $100 towards XXXXXXXX023 each month, we’re contributing $100 towards our F@#k Renting Fund (aka a house down payment), or $100 towards Badass Next Car Fund.
Set Long-Term Saving Goals
Some goals take so much time to save up for that you’re not really sure how much you need.
We plan on buying a home sometime in the future, but we’re not sure when. Seven years? Fifteen years? Will we even be living here then? Will we move to a cheaper area? Will there be a housing bubble in the future? Hard to tell.
The same thing goes with retirement. Are we gonna be super sick, or healthy with low medical bills? Will we have a paid-off home, or will we still need money for rent or mortgage? Do we want to retire early, or stay working? Will our retirement investments in the stock market give good returns until we retire? Etc, etc…
Because there’s so many variables at play, it’s hard to decide on a set end date and divide the total amount into monthly payments like you can do with short-term goals.
In this case, you have a couple of options. You can just contribute a set amount and hope it’ll be enough, or contribute a set amount of your paycheck.
Saving For A Home Down Payment
For our home, we’re contributing a flat $100 per month towards a down payment right now. Sure, we’re hoping to bump it up more in the future. Right now though we’ve got $2,000 saved up, $100 at a time, and that ain’t chump change.
Saving For Retirement
Retirement accounts are a bit of a different story. Most people suggest contributing a set percentage of your paycheck towards retirement—usually at least 10-15%. This is way easier if you have a workplace retirement plan for a couple of reasons:
- The money gets taken out before you “see” it, so it’s an automatic saving plan
- If you have any employer matching, it’s 100% free money—take it!
Weirdly enough, if you can live on your current salary forever, there’s some crazy math that says how soon you can retire based on the percentage of your income.
Mr. Money Mustache (an early-retirement guru) laid out the math in this post. To sum it up, if you can save the following percentages of your income, you can retire in this amount of years:
- 10% — retire in 51 years
- 25% — retire in 32 years
- 50% — retire in 17 years
- 75% — retire in 7 years
I don’t know about you, but now I’m trying to figure out how I can live comfortably in a cardboard box for the next seven years right now…
Automate Your Savings
What’s the use of developing saving goals (short- and long-term) if you don’t actually go through with them?
Instead, let’s make this as hassle-free as possible. We’re trying to make it easy, remember?
The best way to ensure you reach your saving goals and ultimately succeed with your money saving plan is to automate your savings.
You can do this in a few ways:
If you’re saving up for retirement with a workplace plan, they’ll take it out of your check automatically. You might need to go talk to HR to fill out any necessary forms.
If you have a workplace retirement plan with matching employer contributions, you need to take advantage of this. It’s the only opportunity you’ll ever have to get a guaranteed 100% return on your money.
If you’re saving for retirement with your own individual retirement account (IRA), you can tell whatever investment service you’re using to automatically withdraw your set amount each month. We withdraw $100 per month for our own IRAs into our Betterment (affiliate link) account this way.
You can also set up automatic bank transfers into each of your individual savings accounts for your short-term financial goals. Just make sure you keep an eye on your spending and your bank account levels lest you overdraw the account after a wild night out at the bar.
Save Money Automatically With Smartphone Apps
If you want to save even more money, you’re in luck! There’s a handful of apps that’ll save money for you automatically in different types of accounts. Here’s how they work:
This cool program works by rounding up each purchase you make on your credit/debit card to the nearest dollar. It’ll then deposit that into an investment account, where it’ll continue to earn money for you at a super-high rate over time.
Of course, the stock market can dip, but because you’re not putting your life savings in here it shouldn’t affect you. This app also costs $1/month—not bad for what you get.
You simply link up your bank account with this app and it’ll pull money out into a separate savings account. It uses fancy robots and the Matrix to somehow determine how much you’re likely to not need by analyzing your past spending habits, and then it withdraws that amount into a savings account.
Be warned, though: it costs $2.99/month to use, which is a little high considering you can deposit your own money in your account for free. If you need help though, it might be worth it.
You tip other people, so why not yourself when you follow good behavior like not buying that $5,000 metal-themed cruise vacation, or going to the gym to work out?
This cool app will collect your tips into your own virtual Tip Jar, which you can empty into your bank account at any time. Plus, it’s free to use!
You can set up a whole bunch of ways to save money into a savings account with Qapital. For example, you can set up automatic transfers, round up each purchase to the nearest dollar and save the difference, or link up your other apps to Qapital so when you do something, you reward yourself.
Plus, this app is totally free too!
Check In With Your Savings Regularly
Each month, do a once-over and check in with your savings accounts.
Have you had to withdraw any money? Do the funds need topping off?
Are you making progress as fast as you want? Do you need to shuffle money around from some categories in your budget to make faster progress?
Did you get a raise at work? Can you up your retirement contributions?
Starting and maintaining a money saving plan doesn’t have to be a hassle. As long as you take some time up-front to figure out where you want to go, you can basically put the rest on autopilot. Before you know it, you’ll be exactly where you want.
After all, who really wants to be broke all the time? I sure don’t.
Since instituting this method, I’ve been completely able to avoid taking on any new debt. I was able to afford a $3,000 vet bill to save my cat a couple months ago. I’m earning interest while saving up for my next car, rather than waiting and having to pay someone else interest. I’m going to Peru in a few months, for f@#k’s sake!
Saving up my money so I can live life to the fullest (rather than what my checking account happens to say at the time) has been one of the best things I’ve done for myself ever. You can do it too—I promise!
What Do I Do Next?
Congrats! This is just one of my posts in my Budget Like A Boss series. For more info on how to set up a successful budget step-by-step, check out the other posts below:
- What Are Your Current Spending Patterns?
- Set Kick-Ass Financial Goals
- Create A Budget
- Track Your Spending
- Create A Badass Money Saving Plan <- You are here!
- Adjust Your Budget
How do you save money? What have been your struggles and successes? Leave a comment below!