Adding money to your savings can get derailed pretty easily.
Perhaps you have something serious like an emergency come up.
Or maybe you simply eat out too much and that reduces how much goes to your savings account at the end of month.
Whatever the reason, there are plenty of excuses for why your savings doesn’t grow as fast as you planned.
My wife and I were in the same situation for a lot of 2015. We kept planning on adding more money to our savings, but things came up.
Well, in November 2015 we made a plan.
And that plan allowed us to increase our savings rate 169%.
We moved from saving, on average, $830 per month to $2,233 in November.
We really didn’t do ourselves any favors.
But the great thing is that our plan is easy to replicate and doesn’t require anything complicated.
Here’s how we did it:
- Reduce the spending on your largest discretionary expense
- Put in extra work
- Be proactive instead of reactive with your savings goal
Simple enough, right?
Here are the details.
We found our largest discretionary expense and focused on reducing that spending
When it comes to the changes you can make that will make a fast impact, look to the areas you can quickly spend the most money in.
For us, it was food.
For others, it may be entertainment, clothes or technology.
For context, we spent about $800 on food in October of 2015.
Ugh. And on average we were probably at $600 per month earlier in the year.
Considering we have a two person household, that is quite a bit!
So we planned for taking that down by trading a lot of our eating out for grocery store visits.
We wanted to get as close to $4o0 as possible, and as we went through the month, we ended up spending around $450 in total.
We were really excited about $350 in savings in one category.
Now while we focused mainly on our food, that doesn’t mean we weren’t also careful with other areas of our discretionary spending.
Two ways we were able save additional money included:
- Trading activities we had to pay for with outdoor plans like hiking
- Instead of heading to the movies or a show, we were able to watch new movies online
But as a whole, adjusting discretionary spending played a minor role in how much we were able to save.
Put in some hard work
In order to increase our saving by a whopping 169% when we were already averaging over $800 a month, we had to find a way to bring in some extra income.
And to be perfectly upfront, if you’re aiming to increase your goal by a high percentage then you’re most likely going to have to take this step.
If you’re instead taking a route where you’re aiming for, let’s say, an additional $400 per month, that may be more doable without adding additional income.
Some have a side-hustle that can bring in extra money, others sell things or find odd jobs, but we (my wife, specifically) were able to pick up extra hours at work.
Actually, she was able to go on a trip for work.
She tutors and does behavior analysis with a boy who has autism, and she accompanied him and his family on an out-of-state trip.
It took a lot of hard work and very long days , but in the end a 4 day trip ended up giving her a lot of hours. Who knew!?
Will this happen every month? Nope.
But you put in extra work and time where you can in order to to give you additional flexibility with your finances.
Set your savings goal beforehand
Not too long ago, my wife and I would sit down and look at our budget…kind of.
We were in a position where we luckily had enough money to get us through our relatively minor set of expenses before our next paycheck.
Because of that, we knew what we had to pay and would assess how much money we had left before the next paycheck.
Only then would we take what was leftover and shift it toward our goal at the time.
Sure money was being funneled to our goal, but we could have done better.
Adjusting when you determine how much you’re going to put into savings is key.
I suppose the best way to put it is to be proactive instead of reactive with your savings.
When you’re proactive, you take a look at your budget for the month and see what you have to spend. Then you take the first step I mentioned above and try to find ways to reduce your discretionary spending.
Set a goal just for that.
Now, with taking everything into account, how much money can you save this month?
Make a plan to transfer the money throughout the month so extra doesn’t get lost in random expenses.
For example, we planned to transfer ~$1,300 in the first two weeks of the month. Then, once our next paycheck came in, we transferred the remaining to hit $2,233.
We had been finding that even if we planned ahead of time, waiting to transfer one lump sum at the end wasn’t working too well.
So set your savings goal at the beginning of the month and make regular transfers to hit that goal.
Is this really doable for everyone?
If you have a paltry savings rate at the moment, it might even be easier if you know you’re wasting a lot of money.
For those who already are saving quite a bit, you’ve picked the low-hanging fruit and now it’s time to climb the tree a little bit higher.
Put in that extra work to increase the income you’re bringing in and you will really start to see a difference.
Do you need to have a huge increase in your savings rate? No.
The point is that you’re taking steps to improve your financial situation and that’s what counts. Everyone’s situation is different, so make sure you’re optimizing yours.