Budgeting 101 — This is how I save

Everyone knows they should be on a budget, but many people don’t know where to begin. Budgets can be overwhelming. Budgets can be time-consuming. Budgets can we hard to stick to. Let’s try to break it down into more manageable pieces to try to keep it as simple as possible. Keep in mind that this is what has proven to be the most effective way for me to save money and while this works for me, it may not work for you but there are many pieces/tips that can be used and adapted to your own budget.

1. Determining your budgeting goal — What are you saving for? Is it a big goal like a down payment on a house that may take some time to build up? Is it a medium-sized goal like buying a car or paying for a trip? Is it a smaller goal of buying a nice new jacket for the upcoming winter season? It doesn’t matter what it is, it’s just the fact that you are creating a goal to try to save towards as it will determine how aggressively you may need to save and budget yourself. What’s your goal?

My wife and I recently were saving to buy a home. That’s a big goal and we needed as much as we could save for the down payment, so sticking to a tighter budget was going to be key to meeting our goal.

2. When do you get paid/how often do you get paid — Some companies pay once a month on the 1st of the month. Some companies have multiple pay periods. When and how often do you get paid?

My company makes one payment on the 1st of every month but my wife’s company pays every other week. For saving and budgeting purposes, use the total amount of income for the month.

3. What are your monthly bills? These are everything from your utility bills, to car payments to cable bills. You will need a rough idea of how much you spend each month in order to determine how much you can save. These are bills that absolutely have to be paid each month because let’s be honest, no one wants to have the heat turned off.

4. Take a high-level view of your financial well being. Now that you have determined when you get paid, as well as what your monthly bills are, the math is pretty simple to determine how much money, roughly, you have left each month. Simply subtract out your monthly bills from your paycheck and you have and accurate estimate of your monthly financial well being.

For the purpose of simplicity, let’s stick with my situation where my wife and I were looking to save for a house. We knew roughly how much we could afford for a future mortgage payment, and from that monthly payment, we were able to back into our loan amount, which determined how much house we could afford.

It turns out we were going to need to save pretty aggressively, so this is what we did:

Every month we were paid on the 1st. We paid our bills and what we had left over was intended to get us through the rest of the month.

Groceries, going out to dinner, paying for coffee every day — these things can all add up and even worse, without paying attention to them, you can quickly go through that money, leaving you with nothing to put towards your future house. The worst thing that can happen when you are trying to save is to think that you have more than enough money in the bank because that mentality can cause you to become financially confident, causing you to spend more and save less. Financial confidence can lead to poor saving decisions so let’s try to avoid that mistake.

The best way to battle financial confidence is by cutting it off at the head. To do that, you will need to take a slug of that monthly income, put it in another account and forget about it. Better yet, set your online banking account up so that on the 2nd day of the month it automatically transfers the money into your savings account so you don’t even see it in your account and can fight off the temptation to spend it.

Back to our example of buying a house, houses are expensive so we needed to save aggressively. We were trying to save 25% of our paychecks to put towards a new home. A lofty goal for sure.

Each month our accounts automatically transferred money from both of our accounts into a joint account, that way we never saw it in our personal accounts, and the rest that was left over was for our monthly expenses.

We didn’t want to completely cut out all of the things we enjoy doing like going out to dinner, but since there is less disposable income in each of our accounts, we needed to cut back on some things.

Simple ways to cut back are not buying lunch every day at work, and cutting back on how much money you spend on coffee. Coffee is deadly because it only feels like you are spending a couple of bucks a day, but over the course of a month, you can easily spend $50 or more just on coffee.

Lunch is another one that if you bring your lunch instead of buying it every day, that’s an easy way to save several hundred dollars a month.

One other thing to do is set your thermostat to a schedule. Have the heat only come on when you are home, and have it turn down while you are away. A lot of people forget to turn the heat down when they leave for the day, so you end up paying for heat you are not even using. Take the time to set a daily schedule on your thermostat and only pay for the heat while you are there. You can save a lot of money this way.

Setting a budget can be hard and sticking to it can be even harder. You may have a month or two where you get off budget. Unexpected expenses come up all the time and it’s important to not get frustrated by them if you end up having to dip into your savings a little to help pay for them. Just make sure you get back on track towards whatever your savings goal may be the next month and see if there’s a way to temporarily cut an expense to get you back on track.

Don’t get overwhelmed by trying to set a budget and sticking to it. The key is determining what your savings goal is going to be, moving the money from your checking account to your savings account automatically, and trying to cut back on some of the non-essential expenses. See if you can incorporate some of the things my wife and I did and feel free to tweak or comment below on what works for you.

For more money saving tips, make sure to always check swish.com or download the app. It’s the easiest way to control your spending, and resolve issues with any purchase.