How to Budget and Start Saving Money

Disclaimer:  While Craig is a CPA, this post is simply meant to share what budgeting and money-saving methods that we use that work for us.  This is not meant to be financial advice.  Talk to your own CPA or financial advisor about what is best for you!

I’ll be honest, before I met Craig, I didn’t really think too much about saving money.  I mean I had the 401k with work and a savings account I’d send a little bit of money to each month, but other than that I had no real strategy to maximizing my money to save for different financial goals.  I’d also online shop whenever with no real budget in mind.  Craig works in corporate accounting and is a CPA, but he does a ton of research on his own about ways to save.  (Side note- he is not a tax accountant, we get to suffer through those just like everyone else lol.  I mean I guess he knows a little more than your average person but that’s not his area of expertise. Did you know there are accountants that do things other than tax?  I didn’t before I met Craig.  Consider this your bonus lesson for the day!  I know you were dying to know that. OK I’m digressing…back to the topic at hand…)

Below I’m going to outline how we budget on a monthly & yearly basis as well as tips for how to start saving money.

How to Budget and Start Saving Money

Where to begin when setting a budget?

• Know what you spend money on currently and how much by tracking spending.  You can use a platform like Mint (we use this) or another if you prefer.  You can also do this by just looking at your statements each month, but that is a much more manual process and will take more time.  But if you don’t like the idea of linking up your accounts online to another platform, you can do it that way.
• Assess.  Start by monitoring your spending for about 3 months or so to get an idea of what you’re doing currently.  You can do this prior to setting the budget OR you can do a budget and see if you’re actually spending where & what you thought you were or not.
• List out your financial goals.  Make them specific and measurable.  Then build these into a budget:
  • Things I have to spend money on (housing, groceries, etc.)
  • Things I want to spend money on (entertainment, eating out, shopping, travel, etc.)
  • Remember to budget for things that happen only once a year, like your car tags, vet bills, Christmas gifts, etc.
• Tracking systems.  You can experiment with different tracking systems like excel or Mint to see which ways you prefer.  We do a combination of Mint and Excel.  If you are an old school pen & paper kind of person, there are tons of different free budget templates you can find on Pinterest to use.  You don’t need to recreate the wheel…there are literally thousands of pre-made templates out there already.
• How much per month? How fast I want to achieve “X” savings goal will determine how much savings go toward it each month.
  • For example:  Say you want to save $10k in 3 years for a house down payment.  How much do you need to save each paycheck to achieve this and still save money for the things you have to spend money on?  Once you determine that amount you can build it into your budget.
• Review.  Look at how you’re doing at least 1x/month but more if you can!  We have a set weekly meeting on Wednesday evenings to review.  It doesn’t take much time to do these check ins but they are very important.  Schedule them on your calendar.

Start Saving Money

Ways to Save

• 401k.  Make sure you are putting in at least the minimum amount to get your company’s match.  The is nonnegotiable.  It’s FREE MONEY.  Don’t leave it on the table.  Talk to your HR if you are unsure about how to do this or how much you are currently contributing.
  • If you are self-employed like I am now, there are options for self-employed 401ks too.  We rolled my previous 401k into my new account and I continue to put money into it each month.  Even though I no longer have a company match, it’s still worth it!
• Pay yourself first.  Try to do 10% of your paycheck each month, if you can.  What do I mean by pay yourself first?  Basically, take the money out of your checking and put into savings so you can’t spend it!  You can set this up to be automatically transferred on certain days of the month or you can do it manually just depending on your banks.
• Have a sense of urgency about your savings.  Don’t wait another day to start saving because it adds up.  The time value of money is something that people don’t always consider, but should.  Read this example.
• Emergency Savings.  Everyone needs emergency savings in the event of…well, an emergency.  How much do you need?  Whatever amount of money you spend each month, you want to try to build up a savings of at least 3 times that much.  Ideally 6 months.  This should be one of your first savings goals if you don’t already have this because you never know what might happen and you lose your job or something changes and you need it.  Then you can reallocate funds to a different savings purpose once you have this.
• Longterm:  We invest in the stock market using index funds with the lowest annual fees.  We use E-Trade but there are others out there you can research to see what is best for you.

Ways to Cut Spending

• Cut out everything and then add it back in. This is a very aggressive approach but all the big time FI (financially independent) podcasters swear by this approach, and if you’re serious about making changes you can try this method!  Admittedly this is not what we did but it’s one approach.  With this, you basically cut out everything you currently spend money on and then only add back in the things you feel are totally necessary.  Perhaps you realize you don’t need Netflix or maybe you can get rid of cable.  Or maybe you would never want to get rid of Netflix and it’s totally worth it to you. That’s fine!  This exercise just lets you see what is really necessary and what is not.
  • Speaking of podcasts, we enjoy listening to the BiggerPockets Money podcast and the Mad Fientist podcast.
• Use credit cards for points, but ONLY if you have a good grip on budget.  Going into credit card debt will more than offset the points you’ll get.  But if you’re paying everything off each month and hitting your other budget numbers, this is a great way to earn money back or savings on other purchases.  **Make sure you are paying off your entire credit card balance each month, otherwise you’re going to end up paying more in interest in the long run.
  • *If you currently have credit card debt or another loan debt, another first goal you’ll want to tackle is to pay this off as soon as you can, and then just like the emergency savings, once you have that you can reallocate those funds to another goal.
• Housing, Cars, and Food.  That’s where most people spend the most amount of money.  So if you want to save big, that is where you’ll need to analyze.  Can you find a less expensive place to live?  Can you drive a less expensive car?  Can you shop at a less expensive grocery store?  When Craig and I were buying a house, we intentionally set a budget for buying a home lower than we could afford because A) we didn’t want to be house poor and B) we wanted to be able to save and be comfortable.  We love our little house and while we might not be here forever, we’ve saved more living here than if we had gone and bought something bigger just because we could.  We currently only have 1 car payment which is great since Craig’s vehicle is paid off.  And even though Harris Teeter is super close to my house, I drive a little bit further most weeks to go to Food Lion because it’s cheaper.  We save roughly $30-50 per grocery bill and that really adds up.  It’s really all about what’s important to you.

FUNDAMENTAL QUESTION:  Are you spending less or spending more than what you make?  This seems basic, but a lot of people spend more than they make which is why so many Americans are in debt.  Credit cards make it way too easy to spend money that you might not have…so if that is a temptation, don’t use the credit cards.  Simply have a checking account that you use to buy things because it essentially is paying with cash and you can’t spend what you don’t have.

Another thing that we like to do is measure our net worth.  This is a goal-oriented task that can really motivate you if you like seeing progress.  Craig has this in a chart for us so we can see the trend month to month and over time.  Seeing the net worth go up is so exciting and it makes being more conscientious about spending worth it.  Similarly, it can also motivate you to get your rear in gear if you see you have a bad month or the trend dips down.

I know this is mostly pretty basic stuff but you’ve got to have a good foundation before anything else.  I hope it helps, and if you have any questions feel free to ask!

xo,

Bess