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The Save-to-Spend Budget
By MP Dunleavey Monday February 22, 2010
If you'd like to become an avid saver, and/or if you scored in the lower range on our budget quiz, try this Save-to-Spend plan. While most budgets are designed to control spending, this one is designed to expand your saving.
And strangely—wonderfully—the focus on saving helps you to spend less.
Here's the plan, based on a monthly income of $4,000. You can work from your pre-tax or after-tax income; pre-tax helps you save more. Either way, aim for these percentages:
- Set aside 10% per month for retirement. ($4,000 x .10 = $400)
- Save 10% for long-term needs, i.e. a new car, a down payment.
- Save 10% for short-term and unexpected expenses, i.e. a friend's wedding this spring, replacing a lost cell phone.
- Stash a final 10% for fun, frivolous, pleasure.
If living on the remaining 60% (in this case, $2,400) sounds impossible, don't flip out. This is the save to spend plan, remember? You don't really live on beans and 60% of your income. You end up spending two of those four savings buckets every month, and the third one as needed.
The beauty of this system is three-fold:
- By creating stashes of cash, you will be able to cover all your expenses—especially the curveballs—and avoid relying on little Ms. MasterCard.
- As you ramp up your savings, you'll pare down your spending…because you'll want to save.
- You never feel like you're on a budget. You feel rich, because you have cash growing in your accounts.
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Written by Miranda Spencer, February 23, 2010
Great idea, but what advice have you for those of us self-employed folks with unpredictable income? Some months I don't make enough to save anything (especially with the 'unpredictables' you mention); other months I do. The key issue is I can't budget when I don't know what I'll be earning from month to month. Thanks.
Written by erin, February 23, 2010
This is useful advice but I noticed that your examples are often a bit disturbing as they repeatedly show an example income that is significantly more than most women (especially those of us who are trying to save) actually make.
Written by Kristina, February 23, 2010
I do this each month although the figures are a little different and not exactly 10%. I save into categories for everything: insurance, gas, gifts, short and long term savings, house hold stuff, vacations, contacts, my own health savings account, emergency account, downpayment account, and new cell phone etc.
I like knowing that i am saving a bit each month for what i need for each major expense and it allows me to plan my expenses for the whole year. Knowing whcih months are going to be especially difficult in terms of large payments means I really pay attention and save each month.
I like knowing that i am saving a bit each month for what i need for each major expense and it allows me to plan my expenses for the whole year. Knowing whcih months are going to be especially difficult in terms of large payments means I really pay attention and save each month.
Written by Amanda Steinberg (DailyWorth founder), February 23, 2010
Hey Miranda -- I'm going to defer to MP on your question.
Hi Erin! I just looked up our most recent subscriber statistics, and believe it or not ... 70% of DailyWorth readers earn more than $4,000 a month. And as an aside, please don't get too hung up on the numbers in this case. We generally use $4,000 a month in our examples based on the national average salary as a way to illustrate the math.
Hi Erin! I just looked up our most recent subscriber statistics, and believe it or not ... 70% of DailyWorth readers earn more than $4,000 a month. And as an aside, please don't get too hung up on the numbers in this case. We generally use $4,000 a month in our examples based on the national average salary as a way to illustrate the math.
Written by Rita, February 23, 2010
A great system! It's working for sure. But what should I do, when the monthly income of me and my two kids is less than 400$? (No typos, it's our reality...)
Written by Petunia, February 23, 2010
Miranda, if I were you I would make an annual budget then divide by 12. Whatever that number is, make a deposit into your checking account on the 1st of each month for that amount. (Assuming you currently have this amount in a savings account). Pay all bills and expenses only from this checking account. (Including amounts you pay to yourself.) As you receive revenues during the month, deposit them into your savings account. In this manner, in leaner months you are dipping into savings, in flusher months you are building savings.
This is a strategy I picked up somewhere, not my original idea.
This is a strategy I picked up somewhere, not my original idea.
Written by MP Dunleavey, February 23, 2010
Miranda--Petunia's idea is a good one, but you need to shift your perspective first. Your income may be erratic (mine is, too), but your expenses are not. Every month, you need $X to cover rent, utilities, commuting, whathaveyou.
Once you identify your monthly maintenance--what your life costs--then try Petunia's suggestion.
Rita--How are you living on $400 per month?! Would you like to share your story with DW readers? Either way, feel free to email me and I can try to make some suggestions for ways to save.
Once you identify your monthly maintenance--what your life costs--then try Petunia's suggestion.
Rita--How are you living on $400 per month?! Would you like to share your story with DW readers? Either way, feel free to email me and I can try to make some suggestions for ways to save.
Written by Kenia, February 23, 2010
I like the 50/30/20 Budget that states: Use 50% for Needs (including payroll taxes, insurance premiums, rent, and other bills), 30% for Wants (This includes things like going out, frivilous spending, even my home internet service, and cell phone extras above the absolute basic service necessary), and 20% for Savings ('Savings' includes retirement, long-term, short-term, as well as 'extra' payments above the minimum required to pay down any debt). I calculated my budget standing using MSN's 50/30/20 calculator (URL below). Currently my own finances are sitting at 57/19/24. Over time I will trim the 57% down to 50% (my 'savings' is at 24% because i'm on an accelerated debt-payment plan, which will bring my 'needs' down to 50% in 4 years once my truck loan is paid off entirely). For now, it's nice to know I could live off 57% of my income if something happened and I lost my income. I wouldn't need to scramble to replace 100% of my current income. http://articles.moneycentral.m...dget.aspx.
Written by Melanie, February 23, 2010
I have no sort of budget or savings schedule but right now I am focusing all of my extra cash towards a down payment on a condo and starting a ceramics business. In have have these two goals I now have a future that seems tangable to me which is a start a great budget and savings schedule. Rita if you have a dream to do something you will make it happen in the most surprising ways that you never thought possible. Anyways a penny saved is a penny earned. Think small picture to get to the big picture.
Written by MP Dunleavey, February 23, 2010
Kenia, thanks, that's another great one--and very similar. The idea, really, is to save enough to cover unexpected and long-term expenses. People want to believe that "It was only this month I had that extra expense." The reality is, EVERY month brings some financial curveball. I also like the way the 50/30 divides Needs from Wants.
Written by Heather, February 23, 2010
Great advice. Quick question, though... The 10% we're putting into retirement, does this include an IRA or is this a separate, high-yield savings account?
Written by Michaela, February 23, 2010
This may be a silly question, but when we are saving money in different accounts, are we opening different savings accounts for this? How do we go about doing that? thx :D
Written by Cindy, February 23, 2010
Very few people I know make 4000 a month! My grandad used to put 1/4 of his pay away for retirement but he made very good $. When he retired they lived well on this. His formula was 1/4 on housing,(rent or house note)1/4 on food and 1/4 on bills. Notice no healthcare expenses. His career paid for that.
Do you know anyone who can do that now with housing cost going up and up. Any who gets a serious illness becomes bankrupt. Bring on socialized medicine. Canadians don't live in fear of bankrupting diseases.
Do you know anyone who can do that now with housing cost going up and up. Any who gets a serious illness becomes bankrupt. Bring on socialized medicine. Canadians don't live in fear of bankrupting diseases.
Written by liz, February 23, 2010
I love the way MP breaks down saving money into basic steps. Everyone should take her money class because she takes the "fear" out of money.
Written by Alycia, February 23, 2010
I like this idea! I've just set my accounts up to do this, only problem is that my end of the month check almost all goes to rent so I won't be able to fully implement it this go round, hopefully I'll be able to set aside half of my rent from each pay check going forward.
Written by Annie G, February 23, 2010
We also use the 50/30/20 balanced plan (which is done using after-tax income).
Except ours is actually 35/25/40. (That's 35% obligations/needs, 25% wants, 40% savings.) We are fortunate to have a good income and not lots of wants. It doesn't hurt that we live in north TX where we have a decent home worth only $140k!
Except ours is actually 35/25/40. (That's 35% obligations/needs, 25% wants, 40% savings.) We are fortunate to have a good income and not lots of wants. It doesn't hurt that we live in north TX where we have a decent home worth only $140k!
Written by Lisa S, February 23, 2010
Wow. This is a great conversation with lots of inspiration. As a single parent I am generating the income and am trying to bolster savings to calm my financial stresses. I, too, am self employed. I use the divide by 12 method to balance out expenses and save for big expenses (like estimated taxes and camp etc) later in the year. I am working on saving more.
Lisa
www.singleparentsavings.wordpress.com
Lisa
www.singleparentsavings.wordpress.com
Written by Sara, February 23, 2010
I am new to the site and i find a lot of useful and interesting conversations here. I make less than 1300.00 a month and my debt is spiraling out of control. I can barely make ends meet on that let alone save for "long term" extras, short term emergencies, etc.
Written by Johnica Dingus, February 23, 2010
I dont have an actual bank account, but a prepaid debit card. I want to start saving ten percent for different reasons, so aside from putting them in the cookie jar, does anyone have any suggestions?
Written by Carol, February 23, 2010
The scenarios I have seen here seem to rely on VERY low numbers for housing. In the northeast part of the USA, housing is expensive and probably consumes more of the monthly budget than is often recommended. Some of the scenarios presented here seem to apply to apartment dwellers. The simple process of owning a home, while arguably a solid investment, also presents quite a number of expenses, some planned and some not - from the very large: a new furnace, septic system or roof, to the smaller, new screen door, gutter repair or paint job. These are very hard to predict and plan for and only after having owned three different houses do I have some kind of idea of what it takes financially to maintain a house. And each property is completely different, due to age and maintenace done by previous owners - again, these are larger factors in the northeast due to the age of much of the housing stock.
Written by Petunia, February 24, 2010
Johnica - Is there a reason you don't have a bank account? Why not open a savings account at a local bank? The interest will be miniscule, but your cash will not be at risk to theft as it would in a cookie jar.
Sara - living on $1300 per month is no doubt a challenge. I think you should focus your energies on how you can increase your income. What are your interests, and how can you prepare yourself to use those interests to earn more?
Carol - I spend far more than 25% on housing too. Including utilities, I am at approximately 40%. It is doable, but it means I have to make cuts elsewhere.
Sara - living on $1300 per month is no doubt a challenge. I think you should focus your energies on how you can increase your income. What are your interests, and how can you prepare yourself to use those interests to earn more?
Carol - I spend far more than 25% on housing too. Including utilities, I am at approximately 40%. It is doable, but it means I have to make cuts elsewhere.
Written by MP Dunleavey, February 24, 2010
People have so many fascinating questions about the budgeting process, esp. about budgeting on a limited income, we are going to address a bunch of them in Monday's post. Please stay tuned!
Written by jenifer riano, March 04, 2010
Wow I love this website!.. I really learn a lot with everbody's comments,but I don't seem to be making
Much progress. I make 2,400 a month , I don't have a penny saved, everytime I put money into my savings account I have to use it right away. I currently traveled outside the country and paid for college credit classes myself, and my husband was unemployed for a 1year and 3months, its been a nightmare! He recently got a job , he now makes about $560 a week , I don't seem to like this situation very much, and our expenses are about 2,000 a month, will I be able to save some money soon? I really want to have my own business and I need some savings for sure, any suggestions on how to make it happen?
Much progress. I make 2,400 a month , I don't have a penny saved, everytime I put money into my savings account I have to use it right away. I currently traveled outside the country and paid for college credit classes myself, and my husband was unemployed for a 1year and 3months, its been a nightmare! He recently got a job , he now makes about $560 a week , I don't seem to like this situation very much, and our expenses are about 2,000 a month, will I be able to save some money soon? I really want to have my own business and I need some savings for sure, any suggestions on how to make it happen?
Written by Ginny, March 09, 2010
Great Plan! But it does pose a small problem. I tithe 10% of my income. Where would you recommend cutting if I am unwilling to shorten or remove this 10%. Also, any suggestions on eliminating credit card debt?
Written by Sas, March 19, 2010
So I have been reading the info on this website and have been diligently reading my daily emails from Daily Worth, nodding my head in agreement with all this great advice, with of course a note to remember all of this and opening 2 more savings accounts, create a realistic budget, investigate a retirement plan etc etc.
Then on Tuesday my world came to a screeching a halt, my not so graceful self spilt tea on my laptop - then I immediately turned my laptop upside down to drain the tea - makes good practical sense - right?
Between doing that and then realising my laptop was suddenly on the floor I immediately began sweating. I turned my macbook pro over and just as I opened my eyes to inspect the damage -I realised my LCD screen was completely shattered! Then the thought came to me as quickly as my mac had hit the floor - This is why I should have started that emergency fund!
As an entrepreneur my macbook pro is my world. In the name of saving trees all my work is filed electronically. I weighed the options and had to investigate getting my mac fixed immediately because I literally could not do any work without it.
So yes, I have just recovered from my real word, in your face experience that yelled at me - get your financial life in order and make your savings plan a reality. I was so taken aback by the amount of money I had to give up to get back to work, I even called my college credit card company to negotiate and begin to pay that card off!
Thanks for all the advice every day - I really need it!
Then on Tuesday my world came to a screeching a halt, my not so graceful self spilt tea on my laptop - then I immediately turned my laptop upside down to drain the tea - makes good practical sense - right?
Between doing that and then realising my laptop was suddenly on the floor I immediately began sweating. I turned my macbook pro over and just as I opened my eyes to inspect the damage -I realised my LCD screen was completely shattered! Then the thought came to me as quickly as my mac had hit the floor - This is why I should have started that emergency fund!
As an entrepreneur my macbook pro is my world. In the name of saving trees all my work is filed electronically. I weighed the options and had to investigate getting my mac fixed immediately because I literally could not do any work without it.
So yes, I have just recovered from my real word, in your face experience that yelled at me - get your financial life in order and make your savings plan a reality. I was so taken aback by the amount of money I had to give up to get back to work, I even called my college credit card company to negotiate and begin to pay that card off!
Thanks for all the advice every day - I really need it!
Written by Blair, March 25, 2010
I am confused about how you keep the money for each bucket aside - do you open savings accounts for all buckets, have it as cash at home, or keep in one savings account & just keep track of the amount you have in each bucket?
Because of my income, I don't have to ability to have a bunch of savings accounts open when they require you to have a certain amount of $$ in each.
I really like this idea to help me start saving, I just need more guidance on how to actually implement the idea!!
Thank you for the amazing advice!
Blair
Because of my income, I don't have to ability to have a bunch of savings accounts open when they require you to have a certain amount of $$ in each.
I really like this idea to help me start saving, I just need more guidance on how to actually implement the idea!!
Thank you for the amazing advice!
Blair
Written by Linna, March 25, 2010
Great column! I read it when it first came out, and rereading it jolted my memory to keep saving money!!
@Blair: opening several savings accounts will help you reach your long-term and short-term goals. Open one for your emergency fund, your "fun" bucket, your goals for saving up to buy a house. I have different accounts for a wedding, saving up for a down payment, etc etc. When you see the numbers grow, you get really excited about being a little bit closer to making your dreams a reality. Online savings accounts (ING, HSBC Direct etc) offer a better interest rate than conventional ones you open at the bricks-and-mortar bank. HSBC Direct only requires $1 to open an account, so you don't need gobs of cash to start saving!!
Good luck!
@Blair: opening several savings accounts will help you reach your long-term and short-term goals. Open one for your emergency fund, your "fun" bucket, your goals for saving up to buy a house. I have different accounts for a wedding, saving up for a down payment, etc etc. When you see the numbers grow, you get really excited about being a little bit closer to making your dreams a reality. Online savings accounts (ING, HSBC Direct etc) offer a better interest rate than conventional ones you open at the bricks-and-mortar bank. HSBC Direct only requires $1 to open an account, so you don't need gobs of cash to start saving!!
Good luck!
Written by Meg, April 10, 2010
Hi DWers - I just signed up for JustThrive.com - which is a free service to help track spending and saving. The site is very easy to use, but you log into all your accounts so that Thrive can praise or scold you about your financial choices. Good lord it is eye-opening what I have been spending my money on. I like it - but wanted to ask if anyone has heard anything negative about Thrive's security. Or has had any good or bad experiences. So far I would say it's an excellent resource. Thanks!
Written by Amanda (DailyWorth Founder), April 12, 2010
Hey Meg - I met the guys who founded Thrive a few months ago, and I just emailed them to ask your question. This is what they told me:
Thrive uses bank-level encryption / security. And even if someone were to hack your Thrive account, all they could do is SEE your money -- it would be impossible for them to withdraw, spend, move your money in the same way that you, as a Thrive user, cannot move your money within the Thrive system.
I hope that helps.
Thrive uses bank-level encryption / security. And even if someone were to hack your Thrive account, all they could do is SEE your money -- it would be impossible for them to withdraw, spend, move your money in the same way that you, as a Thrive user, cannot move your money within the Thrive system.
I hope that helps.
Written by rwild, April 12, 2010
$4000.00 a month - I take home $225.00 a week. Get real with your examples - why even try this system when I make 1/3 of your example.
Written by Jennifer, April 12, 2010
For those of you who are not making $4000/month, myself included, this is just an example. While I don't do this actual system, the thought process on this is to break down and divide your money - no matter how much you put aside. I'm self employed and I cover my expenses from my pay from my business. Any money I make from selling my stuff on ebay or craigslist gets split between my long term & short term savings accounts. Any money I make off of doing surveys and such online goes into my frivolous spending account. Be creative and pay yourself first!
Written by Nik, May 02, 2010
To "Petunia" and anyone ELSE who does not quite "get it" in these times of not ONLY economic DISTRESS, but other PERSONAL "hardships" as well....
Ever heard of "disability"???
Sorry--a little edgy today--not feeling well, and this article?
It kind was really quite ridiculous, considering what I make in disability with SS. (NOT SSI)--and "NO, there is NOTHING I can do for any amount of hours to add to my income that would not be illegal"...
Your advice is FINE for what I USED to be..."a productive member of society"--however; sadly, I've found the ONLY thing I can NOW do to MAKE money is "shop wise", "do my homework" where repair people are concerned (there are MANY people who LOVE to take advantage of single women--especially ones who are ill...a VERY UNSAVORY notion), "plan shopping routes wisely", "utilize time well" (time IS $$) even if you DON'T work any longer...
That is MY daily's "worth" aka "two cents".
Have a GREAT day!!
Nik
Ever heard of "disability"???
Sorry--a little edgy today--not feeling well, and this article?
It kind was really quite ridiculous, considering what I make in disability with SS. (NOT SSI)--and "NO, there is NOTHING I can do for any amount of hours to add to my income that would not be illegal"...
Your advice is FINE for what I USED to be..."a productive member of society"--however; sadly, I've found the ONLY thing I can NOW do to MAKE money is "shop wise", "do my homework" where repair people are concerned (there are MANY people who LOVE to take advantage of single women--especially ones who are ill...a VERY UNSAVORY notion), "plan shopping routes wisely", "utilize time well" (time IS $$) even if you DON'T work any longer...
That is MY daily's "worth" aka "two cents".
Have a GREAT day!!
Nik
Written by Ann, May 10, 2010
My mother is on ssn and she gets $700 dollars a month since my father passed. She has had 3 strokes and multiple heart attacks and diabeties. I say this because she is the inspiration that got me out of my rut and feeling sorry for myself and into financial independence. After watching her scrap together and pay off the heavy burden of bills my father left after he died I realized I had absolutely no reason to whine. I asked her how and why she did it and found out my Mom is a pretty smart lady. She's always been frugal and careful. She doesn't know a thing about finance but she does know how to stretch a buck, live within her means. Once I started living within mine, it was amazing how quickly things got better. Instead of parceling out my savings though I dump everything above and beyond essential bills into my savings account. Then I consentrated on spending less and less. No cell phone, no cable, no lawn maintenance, I even got rid of pest control because they wanted to bill me monthly. I found I could always find a annual or bi-annual service I could pay for less. I paid ahead on my mortgage as quickly as I could and now my house is paid for, and with no extras my monthly bills are the around $400. Amazing, it took time, 10 years, but I feel totally in control and there is a kind of high you can get once you start gaining ground and stop feeling like a victim. Challenge yourself and see how fast you can build that cash stash. Make that you goal initially, because nothing builds momentum like seeing real progress... we know that from dieting. Then once you get to one goal, emergency fund big enough to give you breathing room, celebrate with something you really want (but only if you can pay cash), then jump back in. I don't think many of us have the time to sit down and nickle and dime it, but if you simplify it down to a daily game, spend a little a possible each day, you'll find ways to save that a month from now will amaze you and quickly you'll be the independent person you always dreamed of.
Written by Abby, May 18, 2010
I am new to Daily worth, but I just wanted to make a couple comments on this thread. I'm with Ginny - I don't tithe 10% of my income, but close to it...where does that come from in the budget?
Second - Savings Plan
I have a emergency fund savings account and then a short term savings account. I then have an excel spread sheet where I keep track of the categories for that account. So I know how much money I have for new clothes, insurance, vacations, etc.
Second - Savings Plan
I have a emergency fund savings account and then a short term savings account. I then have an excel spread sheet where I keep track of the categories for that account. So I know how much money I have for new clothes, insurance, vacations, etc.
Written by stephanie, June 14, 2010
yeah right....and what about the rest of us who make less than $4000 per month and have other mouths to feed ? ? ?
Written by Maria, June 22, 2010
I just looked at how my income works with the 50/30/20 budget today. We do tithe so the amount for my budget is after taxes AND AFTER TITHE. Of what I have left (just over $3,000 a month) my "needs" category is 80%. Yikes! We don't have credit card debt, or car payments, and only $100 is school loans. That leaves me with 11% for wants and 9% for savings. I'm hoping this can work for us but only if I really watch my spending. :)
Written by AngieBond19, July 06, 2010
A lot of specialists tell that business loans help a lot of people to live their own way, because they can feel free to buy necessary things. Moreover, some banks offer short term loan for different persons.
Written by Jen, July 14, 2010
I would like some advice for what to do when your needs come out to 80% of your income. This is mainly mortgage and car payment. I'm squeezing by, but only b/c I've pared my "wants" down to sad, sad, levels (no new sandals for me, even though the ones I'm wearing are almost ten years old!), and I'm not saving anything beyond a small amount going into my 401K... I have a feeling "second job" will be a suggestion. :(
Written by Kenia, July 15, 2010
@Jen - I think it should always be a combination of both paring down expenses, and increasing earnings. It sounds like you've gone above and beyond on bringing your spending down - so yes, I suppose the answer would be for you to find more income...but that could be in the form of a second job, or selling your own products & services. Are you crafty? If so, you can sell hand-made items. Do you have some skill that you can charge for (organizing, dog-sitting, do-it-yourself skills around the house, auto repair, computer repair, shopping, bookeeping, etc, etc.). I'm sure if you think creatively, you can come up with some additional income.
Also take a look at your current work. Are you getting paid enough? Think it might be time to ask for a raise? Read MP's recent post here (http://www.dailyworth.com/blog/471-the-power-of-asking-lesson-163) for some motivation. :)
Also take a look at your current work. Are you getting paid enough? Think it might be time to ask for a raise? Read MP's recent post here (http://www.dailyworth.com/blog/471-the-power-of-asking-lesson-163) for some motivation. :)
Written by Jeanie, July 22, 2010
I make about $800 a month, which is nowhere near $4000 either. The $4000 is an EXAMPLE. The system still works whether you make $400 a month or $15000. All it takes is a little tiny bit of math. Also, if you don't like the article, DON'T READ IT! I'm sorry if I sound harsh, but all this complaining brings down the morale of those who can make it work.
