Okay, I don’t know about you, but I have had a blast this summer! My almost 3-year-old daughter and I have had so much fun playing together. We have been to the zoo, on the train, camping, swimming, and running through the sprinklers. I haven’t wanted to think about summer ending and winter coming on with all of the holidays and end-of-year expense. But summer is coming to a close in the next month or so and thus it may be time to start getting my head back in the game in terms of staying on top of finances.
Perhaps with all your vacation and travel, you’ve been spending money and not thinking about how to save it, but I’d like to suggest some things you can do to do a better job of saving before the holidays hit:
First, if you don’t have a spending plan, create one. An easy way to do this is by going to the Money Mastery Web site and learning more about how to create one. It’s not that hard, but there are a few steps you should learn about: Create My Spending Plan.
Second, I challenge you to track all your spending according to that Spending Plan from now until the end of September. You can track by phone using a free app from Money Mastery available here. In that six week (or so) timeframe, I can guarantee you will find “extra” money you have been wasting. When you track your money, you will begin to control it and see what you value and where your spending priorities are. When you stop wasting money in spending categories that you do not want to spend so much money in, you will find this extra money.
For example, when I first built my spending plan and then tracked how much I actually spent eating out each month, I was appalled. I had no idea I was spending that much money on fast food. Once I realized it, it didn’t take long to stop the waste and I was able to find money I didn’t know I had.
Third, at the first of October, take the extra money you find and start paying yourself. That means you should create a spending category in your Spending Plan to pay yourself in these three ways:
- Emotional spending
- Emergency spending
- Long-term savings
So let’s say you have found an extra $100 each month you were wasting in areas of your life that you do not want to spend so much in anymore. You can take that $100 and split it using the 60/20/20 Rule:
20% of $100 or $20 you pay yourself for emotional purchases you know you will make, so why not be prepared for them so you don’t use a credit card to pay for them? This emotional, or fun money, is more than just fun — it’s a serious way to stay in control financially by planning for the inevitable. Everyone spends money on impulse, why not be prepared for it?
20% of $100 or $20 you pay yourself for emergencies. Ideally you should have money enough to pay for six month’s of expenses should you lose your job or have a major emergency. But if this seems daunting at the beginning, just work on 3 months, or even having 1 month of expenses saved.
60% of $100 or $60 should go into a long-term savings account that you cannot touch. This is for your future.
If you will look at savings as simply another spending category in your spending plan and plan to pay yourself at the same time you must pay the grocer or the utility company, it won’t be such a hard thing to do. You have made a plan for it and once you do that, it becomes much easier.
Even though summer is still in full swing and everyone’s having lots of fun, you can look to the future and plan to have more money in savings by Thanksgiving. I challenge you to find at least 1% of your monthly income that you have been wasting and see if you can pay yourself this money instead of wasting it on credit card purchases, too much fast food, and other areas of spending that you know you need to reign in.