You can read the rest of the Ways to Make & Save Money series here.
It’s a favorite saying of personal finance advisors and bloggers alike, and for good reason. Paying yourself first is the single best way to build up your savings.
What it really means: The first thing it means is that you have to have some kind of budget so that you know how much you can afford to put into savings in a given time period. If you bring in $2,000 a month and spend $1,800 but budget $500 for savings, you’ll end up discouraged because you’ll never be able to reach your goal.
The second thing it means is that once you set a realistic amount to set aside, you put it into savings before you have a chance to spend it. In the example above, a realistic amount would be $200. That $200 should go into savings as soon as it’s received – that’s paying yourself first.
I have to admit that I’ve gotten away from a regular monthly budget the last few years. I know that we spend well below our income, and I’ve had a rough idea of how much could go into savings. But this year I sat down with Quicken and created an up-to-date budget that gives me a clearer picture of our monthly spending. This is especially important because we’re starting to incur more child-related expenses as the boys get more involved in more activities, like soccer and T-ball and karate.
It only took me an hour or so to create our new budget, since I have a good grasp of our expenses and didn’t have to look up too many numbers. It was simply a matter of inputting the data to get a look at the whole picture. And now I know where I have room to cut back, and how much room there is, and how much I can put into savings each month to start.
Approximately 30% of our savings goal will come from automated savings. So unless something costly happens this year, we’re guaranteed that much success. The rest of the savings will have to come from the other methods I’ve been discussing, and will continue to discuss in the coming weeks.