Welcome back to “Monthly Money Makeover”! This February, we’re continuing our financial wellness journey, brought to you by National Debt Relief and Financial Wellness Board member Dasha Kennedy. Last month, we laid the groundwork with budgeting basics. Now, let’s build on that foundation by focusing on an important part of financial wellness – Savings.
The Importance of Building Savings in Small Increments
Saving money is not just about the final goal; it’s about building financial resilience one step at a time. Starting small and being consistent can lead to significant results over time. By saving in manageable increments, you reduce the financial strain on your monthly budget, making the process more sustainable and less overwhelming. This approach also creates a healthy saving habit, turning what might seem like an impossible task into an achievable part of your daily financial routine.
February: Simplified Saving Strategy
Determine Savings Capacity: To start your savings journey, begin by understanding your savings potential. This is a step that many people often overlook. It’s all about the math – subtract your monthly expenses from your income. This simple calculation reveals how much you can realistically set aside for savings.
Savings Capacity = Total Monthly Income−Total Monthly Expenses
Here’s a breakdown:
● Total Monthly Income: This is the sum of all your income sources in a month. It includes your salary, any freelance or side job earnings, dividend income, and any other regular income you receive.
● Total Monthly Expenses: This includes all your monthly spending. It’s important to track both essential expenses (like rent/mortgage, utilities, groceries, insurance, and transport costs) and non-essential expenses (like dining out, entertainment, subscriptions, and hobbies). By subtracting your total monthly expenses from your total monthly income, you get your savings capacity.
Set a Savings Goal: Aim high but stay realistic. Whether it’s saving for an emergency fund, new technology equipment, a dream vacation, or a down payment on a home, having a concrete goal gives your savings purpose and direction.
Create a Savings Category in Your Budget: This is where intention turns into action. Allocate a specific portion of your monthly income to savings, treating it as a priority, not an afterthought.
Adjust Expenses to Increase Savings: If your expenses are putting restrictions on your saving ability, it’s time for a change. Review your expenses and cut back on non-essentials. The easiest way to determine what is non-essential is to categorize them as expenses you do not need to survive. Every dollar saved is a step closer to your goal.
Choose Where to Save Your Money: Not all savings accounts are created equal. Research and choose a saving tool that aligns with your goals. Be it a traditional savings account, a high-yield account, or other investment options, pick what works best for you.
Automate Your Savings: Make saving effortless. Set up automatic transfers to your chosen savings account. Consistency is key, and automation makes it easy to stay consistent, especially if it is a small amount of money.
Regularly Review Your Plan: Keep your savings strategy strong. Regularly reviewing and adjusting your plan makes sure that it aligns with any changes in your financial situation.
Imagine earning $3,000 a month with expenses totaling $2,500. This scenario leaves you with $500 for savings each month. Setting a goal to save $6,000 in a year, you could decide to automate bi-weekly transfers of $250 into a high-yield savings account. Remember, the journey to financial wellness is a marathon, not a sprint.
This February, let’s focus on building a savings plan that supports your financial dreams. Stay tuned for next month’s edition, where we’ll tackle another important part of your financial makeover. Together, we’re transforming your financial health, one month at a time!