So many people today struggle to reach both short term and long term financial goals. I don’t blame them, either because they don’t teach this stuff in school and it gets complicated. Figuring out how to overcome debt, how to save to buy a house, how to invest and how to achieve financial freedom are all vital parts of any financial plan but the issue is, no one really has any idea how to organize their spending and strategize how to improve their earning ability.
This article will go over a few key steps you can take to improve your ability to save for your short term goals in addition to:
- How to create a budget that you’ll actually stick to.
- How to change your spending habits when life is tough.
- How to do the math on how much to save and help you figure out how to invest your savings.
So, let’s get started.
1. How To Create a Budget That You’ll Actually Stick to
a. Start with the end in mind.
Many of us have trouble getting motivated to actually build a budget because it feels so meaningless.
You might ask yourself, “why am I doing this?” and you’ll answer “because I have to spend less.” While that’s not incorrect, it’s also not very motivating or exciting.
This is why, as we help our clients figure out how to save for their short and long term savings goals, we start with the life and future you want to afford.
For example, if you want to buy a house that costs $500,000 in 3 years and you believe you can afford at that time, a $2700 a month housing payment… you’ll need to save $100,000 between now and then. If you assume a 10% rate of return and start with nothing… you’d have to save $2,383 a month as per my partner’s calculator. If that house is something you really want in 3 years because you’d like a family and to be able to ensure the cost of living won’t force you out of the area… then you probably should start saving.
b. Your life is 10% about what happens to you and 90% how you react
They key personality trait that separates people whom are self-made millionaires from those whom aren’t is 1. How they react to the hands they’ve been dealt in life and 2. Their tolerance for delayed gratification.
Many of us want to to be able to afford:
- A nicer car.
- A nicer house.
- More vacations.
- Netter food.
- More time off.
…but we know we can’t afford all of it right now. Some of us may go out to eat more often than we can afford or get that car anyway and just hope that sometime in the future, we’ll earn more so it’ll be okay.
That’s not smart because you’re spending like you think tomorrow will be better. The fact of the matter is, this means that your financial plan is moreso based on a hope and a dream because we don’t know when or how much you’ll earn when things are better, if they ever are. Live on today’s salary; not tomorrow’s hope.
Buy those things when, even after your monthly savings goal and lifestyle have been paid for and you still have a lot extra… meaning, once you earn enough where spending more doesn’t matter. If you can’t save the dollar amount you need to in order to buy the house and experience the future you hope for… it means you can’t afford the lifestyle you have and should spend less, not more.
c. Make budgeting easy on yourself; aim to have low fixed expenses and don’t stop hustling.
The first step in all, easy-to-follow budgets is to have low fixed expenses. By choosing the less expensive home, the less expensive car, meal-prepping, getting generic medication rather than name brand, buying in bulk, etc… you’ll be able to save much more easily because you’ll have more money to save and your finances will feel far more under your control.
This means that, when you have a great month financially, go out to eat more and celebrate by spending half of the extra income you didn’t expect (and save the other half) but also when you have a bad one, don’t spend money you don’t absolutely have to and you’ll be fine.
The second step is to earn as much as possible. This might include investing in professional designations, additional degrees, starting a small business on the side or or or. Whatever it is, aim for this side-hustle to be simple, low stress and high paying so it doesn’t get in the way of your primary job and it helps you reach your goals. If it’s helpful, we also put together a guide for salary negotiation that you can read more about here.
2. How to change your spending habits when life is tough.
We’ve all been there. Work 10 hours one day and you’re driving home in the rain or snow, you’re exhausted mentally, emotionally and physically and the absolute last thing you want is to cook.
What do you do, instead? Probably Door Dash or a Drive-though.
You justify it by saying “I make good money and I can afford this!” but this is the 3rd time this week you’re spending $50 on one meal. This is now a habit that’s costing you literally $600 a month (or $7,200 a year). 3 years of using Door Dash 3 days a week and you could literally buy a car, pay off your student loans or take 2 killer trips to Europe. Is it worth it for those greasy tacos after a long day? Probably not.
We all spend emotionally at times. When we’re grieving, tired, stressed, angry, drained, happy, excited, overjoyed and celebrating. This isn’t to say we should all stop celebrating or mourning and be perfectly objective at all times but to be conscious of our spending and try to spend more purposefully.
- If you expect the upcoming to thoroughly suck, call your grandma up and ask for the recipe for your favorite dish of hers and meal prep it for the week. It won’t have all the love she added but it’ll probably come close.
- If life has been cruel, put on a stick note how many times per month you can go out to eat per paycheck and use each one wisely. You do this because you know things will get better, soon and you don’t want to suffer for years because of a bad few months.
- If you expect a promotion and want to celebrate, give yourself a budget for celebrating. Want to go on a trip because you just made manager? What do you think is a reasonable amount to spending (not too high, not too low)? Recognize when you set that dollar amount, if it’s too high… you’ll have to push back goals.
Whatever emotions you’re feeling, think about them logically else you’ll hurt yourself.
Having trouble sticking to your spending plan? You may need help. Contact us by clicking here and we’ll help you create habits that stick and help you make the progress you hope for.
3. How to do the math on how much to save and help you figure out how to invest your savings.
All financial planning is, is strategizing how best to utilize the extra money you earn every month that you don’t need to afford today. That’s why all plans start where you are: with a budget.
We are big fans of the 50/30/20 budget. Why we love this style of budgeting is because it’s simple, easy to use and easy to follow.
How does it work?
A maximum of 50% of your take home salary is spent on NEEDS. This includes housing, transportation, food, utilities, insurance and healthcare.
A maximum of 30% of your take home salary is spent on WANTS. This includes anything that you objectively cannot live without. This wouldn’t include going out to eat, vacations, online shopping, Netflix, etc.
Lastly, a minimum of 20% of your take home salary being either saved or used to pay down debt.
Because most people don’t like to update a spreadsheet every week with your weekly spending and sort each line item into a certain column of needs or wants, we believe everyone needs to sign up for some budgeting software, free or not.
For tracking your spending, we’re a fan of the following budgeting applications:
- Qubemoney. Every single client of ours gets access to Qubemoney where your financial planner can view your budget, make notes and hold you accountable to spending goals. Alternatively, if you’d rather DIY it with Qubemoney, that’s fine too! It’s digitized the envelope method of budgeting and helps to create awareness between spouses.
- Honeydue.com – the free budgeting application for spouses. When you get married, your goals, problems and aspirations are now your spouse’s as well. Each and every step of the way, you take together and for this reason, you need to be on the same page. Transitioning from being single to being married is a huge transition but it’s one that needs to happen. Honeydue.com creates awareness between partners how the other is spending so you can overcome obstacles together.
- youneedabudget.com – this is the most analytic of the three but also can provide the best insights into trends, spending habits and problems. We recommend this software to our more analytic clients.
Once you’ve organized your spending, ask yourself the following questions:
- Can I make my needs cost less?
- How can I automate my saving so I always meet my savings goals?
- How can I control my spending on wants, more effectively?
- What spending rules can I set for myself and my family to ensure I consistently meet each of my financial goals?
Are you on track for your financial goals?
The fact of the matter is, if you don’t know… it’s highly likely that strategy to afford the future you hope for is based on a hope and a dream. In our opinion, that’s not good enough. Take the first step by requesting a complimentary appointment, below.