For the longest time, I couldn’t save money to save my life. But I started using some of the tips I shared last week (Click here to check them out). Then I really started to get into my savings groove. So today I’m going to break down for you exactly how to create an easy monthly savings plan in just four steps.
Monthly savings plan creation part 1: First, do you know where your money is going?
The biggest mistake people make when they think about creating a monthly savings plan is not realizing where they are currently spending their money. You will never be able to have that great feeling of “being ahead” if you do not understand what money needs you really have and, thus, what you should be saving for.
So you need to get a good picture where all your money has been going. It’s ideal to do it for at least the last three months. If you use a budgeting software or if your bank/credit union has some budgeting features this could be pretty simple. If you’re more of a paper bank statement kind of gal then you may have a little more elbow grease work to get through this one.
It’s not complicated but it does involve seeing breaking down what you spent into categories. So for every transaction you’ll want to be able to give it a cagetory so that you can see what categories you need in your budget. Don’t get too uptight about this though or you’ll end up with too much detail and it’s hard to track.
Here are the main categories I use for spending:
- Groceries (this includes all household items too)
- Dog supplies/food/grooming
- Dining out
- Entertainment (like movies, and activities)
- Fun money (all the other little crap I buy)
The rest is categorized more for bills:
You get the idea, keep it pretty simple but detailed enough that you can sort of know the difference between what you spend at the grocery store versus your Starbucks runs.
And that’s the goal here. You are trying to see what little items you should be budgeting for but aren’t. This way you can start saving for those little expenses in advance and not having to scramble at the last minute to come up with funds all the time. This is what is going to get you “ahead” in your finances. The goal of your monthly savings plan is to have money for what you need before you need it.
Creating a monthly savings plan based on what you are actually spending
Now, once you know what you are spending in each category then you can start setting your goals.
Once you understand where you money is going, then you need to decide if you feel good about how you are spending it. Maybe $100 on books a month is a great investment for you and it brings you tons of happiness! Maybe you’d like to have more or less. You decide. But set numbers that aren’t more than 2-5% different than what you are spending now. If you want to cut your spending in half, do so incrementally, not all at once. I PROMISE you will be more successful.
What I don’t want you to do is look at the amounts you are spending and decide to drastically change anything just yet. It’s tempting to see how much you’re spending in one category and decide to totally eliminate it – but that’s a little like going on a crash diet, right? Those don’t always work out so well. Don’t do that to yourself.
The fact is that you spend money on things because it helps you avoid pain or provides pleasure so in some way so chopping that off at the source is not likely to bring you a lot of joy.
Set annual amounts but monthly savings plan goals
I want to talk about those expenses that are not exactly equal each month – like gifts, school fees, registrations, subscriptions, etc. I like to create my monthly savings plan categories for annual amounts and then break it down into monthly chunks.
Just think about how much you need annually and divide by 12. If that amount seems too big you’ll either need to cut down that category or some other category to cover it. This really helps you see how it all adds up.
When you learn how to create an easy monthly savings plan that accounts for all these little things each month it won’t feel so burdensome when the expenses come due. I don’t know about you but the winter holidays sneak up on me and it feels a whole lot better to put aside a little bit each month and then, come November have all the money I need already there. That’s the feeling you are shooting for here.
Now automate that monthly savings plan!!
I’ve said it before and I’ll say it again, automation is your friend. If you don’t see the money you won’t spend the money. Once you know what your monthly savings amounts are I highly recommend setting up your auto-deposit or an automatic transfer to send that money to savings before it hits your checking account.
If you do direct deposit through your employer you can choose to send a set amount of money to your savings and the rest to your checking each payday. For example, if you get paid every other week that’s 26 pay periods a year. If your annual savings goal is $3000 for all your categories you would divide the $3000 by 26 and that is how much you would auto transfer every paycheck
3,0000 / 26 = $115.38 per paycheck
So the rest of your paycheck would go into your checking account to be used for bills and other expenses NOT covered in your savings goals.
If you don’t have direct deposit you can also set up an automatic transfer through your bank or credit union and just use the same formula. Set it to occur every payday for the set amount you need to save and that money will then “move” on its own into your savings.
My husband and I actually split these up for our total number of paychecks (we basically get paid every week) so that amount of the transfer is even lower each week but it works out the same in the end.
Now get saving!!
Now you’ve got all the steps to make your own easy monthly savings plan – don’t forget to download the Savings Success Guide that has even more juicy information about how to ramp up your savings game!