Are you struggling with creating a savings plan and saving money? I know this stuff is no fun (*cue crying emoji*), so I am going to break this down into easy, bite-size steps for you. The easiest way to follow along is to write everything down as we go. This will help you stay organized and visually see for yourself where your money is being spent, and exactly where you need to cut back.
Most people think the more money you have means the more money you have to spend. Let’s just stop that train of thought right now. Unless you are Bill Gates, Warren Buffet, or the likes, everyone needs to operate within some sort of savings plan. How tight that budget needs to be solely depends on you. There are 4 main factors (okay, in reality 5 main factors) you need to consider:
- How much you’re currently making
- How much you’re currently spending
- How much you’re wanting to save
- The time frame you’re wanting to save it in
- How willing you are to give up some of your favorite vices
I know that sounds like a lot, but don’t worry, we’re going to take it in baby steps.
8 Simple Steps to Creating a Savings Plan
Step 1 – Total How You Made Last Month
We’re going to start by looking at last month’s income. We’re looking at last month because we want to create your savings plan based on what you’re currently making. We’re not going to factor in outliers like; an end of year bonus, receiving X amount of money back during tax season, or if you’re expecting your best friend to pay you back for X amount of money. None of those special cases will apply. We’re only looking at what you are currently and consistently making on a monthly basis.
Step 2 – Total How Much You Spent Last Month
Next, we’re going to make a list of everything you spent last month. These are called expenses. We want to track all of them. And I mean all of them. Every single one.
If you make purchases through a debit card, then you can check your online statements to view all of last month’s purchases. If you make purchases through a credit card, then you can also check your online statements to view your purchases. The hardest is if you make purchases with cash. If so, do your best to scramble together some receipts, and try to recall what you spent money on and how much it cost.
Step 3 – Subtract Your Monthly Income from Your Monthly Expenses
Now we will subtract last month’s monthly income from last month’s monthly expenses. This exercise will help you understand how much you are currently are saving. The number left over is how much money you saved last month.
Step 4 – Discover How Much You Want to Save
Do you already know how much your trip is going to cost you? If not, then you need to create a travel budget for your specific trip. I’ve already helped you out by writing a post on How to Create a Travel Budget in 4 Easy Steps. This post is a step-by-step guide on how to create a travel budget so you know how much you need to save (in total) for you to fund your dream vacation. Go check it out. Don’t worry, I’ll still be here when you get back. 🙂
Sweet you’re back, let’s move on.
Step 5 – What’s the Time Frame You Want to Save It In?
Only you can answer this one. When do you want to take your trip? How many months away is it? Once you know, then move on to Step 6.
Step 6 – Find Out How Much You Need to Save Each Month
Okay, hang tight with me, now we’re getting into the nitty gritty.
Now that you know how much money you need to save, and the time frame you need to save it in, next you need to find out how much money you need to save each month to make this happen.
Let’s use an example:
Let’s just say you are taking a trip to Europe that’s going to cost you $3,000. You are planning on taking this trip in June, and it is currently November. Assuming you don’t have any money saved, you need to save $3,000 in 7 months.
3,000/7 = 428 (let’s round up to 430)
This means, you need to save $430 per month in order to fund your trip.
Now, take a look at how much you are currently saving from Step 3. Is it enough to fund your trip?
If so, then awesome, you are right on track! You can maintain your current lifestyle and still save enough money each month to fund your trip.
If not, then you will need to start budgeting so you can fund your trip. Let’s move on to Step 7 and start looking at the areas where you need to cut back.
Step 7 – Separate Your Expenses
In Step 2 you created a list of last month’s expenses. Now let’s separate them into two categories; necessary expenses and luxury expenses.
Necessary expenses are the expenses that you have to pay no matter what.
Your Necessary Expenses will likely consist of the following:
- Health insurance
- Car payment
- Car loan
- Student loans
- Pet food
Luxury Expenses are the expenses that are just for fun.
Your Luxury Expenses will likely consist of the following:
- Eating out
Step 8 – Discover Areas You Can Cut Back
What are the luxury expenses you can cut back on? I don’t recommend you completely eliminate certain things out of your life. I am not an extremist in any way. For example when I diet, I don’t completely cut out sugar, instead I limit it to only once or twice a week.
Think of a savings plan in that same way. You’ll drive yourself crazy if you decide to never eat out, or never do anything fun ever again. Instead, think of ways you can create a balanced lifestyle while budgeting. Maybe only eat out once a week instead of three times a week. Or maybe only buy coffee as a once a week splurge instead of a daily habit.
Now that you have created your savings plan you are set to continue planning your dream vacation! But if you are still struggling with ways to save money, I’ve also created a post on 25 Ways to Save Money to Travel.
12 Tips for Scoring the Cheapest Flight Every Time (one of my most popular posts!)
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