Our Saving Process

This post may contain affiliate links. If you purchase products or services linked from this page, Summit of Coin may receive a small commission at no extra cost to you.

Last summer, I wrote an article titled, "Americans Not Prepared for Emergencies." This article sparked some interest from some of my friends and some readers. They insisted that not everybody knows how to save and suggested that I write an article about strategies. With that advice in hand, I have finally decided to tackle the "How do you save?" question. 

To write this article, I had think about our saving process. How do we save? Has this model changed over the years? Do we struggle to follow our model any month? How can I completely convey our saving model to my readers so that I can help them? I have mulled over these questions for a while. The below list of steps is our saving process and should be easy to follow (if you need help creating or setting up a saving model).

Step 1: Make a Decision

All of the steps after this one won't happen, if you don't make the decision to make saving a priority. You can't just save to save. You have to have a 'why.'  A tangible goal that gets you excited about saving. You have to look in the future and say, "I'm saving because of....!"

Fidelity has done a pretty good job of conveying this in their latest television ad. You can watch it below:

In the ad, the investment professional states, "That goal you have been saving for, you can do it!" Later on in the ad, you see the couple enjoying their new speedboat with their grandchild. They had a goal (more than one it looked like). I saw a retirement goal and a speedboat goal. 

Your goal could be anything and it will evolve over the course of your life. While your kids are young, your savings goal could be saving for retirement, vacations and college. Before you buy a house, your goal could be to save up for a house and save for retirement. The goal truly depends on your life stage.

What's your savings goal? Could it give you the motivation to start a saving plan?

Related: Steps to Financial Independence: Step 6

Step 2: Automate your Retirement Savings

One of the easiest ways to save every month is to not even see the money. Each and every month, my wife and I invest money into our retirement vehicles through work. These are set up as pre-tax deductions. I know the money is going in there and how much each month, but it's not something I have to think about.

If you have an employer, contact your HR department immediately and set up your auto deductions.

Step 3: Set a Minimum Savings Number each Month

I do not include retirement savings from your work in this number. This number is the minimum additional savings you will be doing each month. This amount can go towards saving for your house. This amount could go towards paying down your principal on your house (I consider principal payments as a form of savings). This amount could go towards college savings, ROTH IRA savings, emergency fund savings, new car fund and many others. 

Just make sure to set this number and save this number every month. It can divided up in many ways, but should always be the same or greater.....never less.

Our minimum Savings Number is $1,200 each month (in addition to retirement savings). We have always saved more than that number, but I use this number to dictate our budget each month.

Related: Our 2018 Goal of Frugality

Step 4: Pay Yourself First

Technically, you already pay yourself first, with each paycheck. Your automated retirement savings automatically pulls money out of your income before you can use it. After the money comes home, pay yourself first again! We do this by setting up our budget each month. 

The first items in our budget are: 

  • Savings
  • Tithe

I make it a point to fill out our budget with those two items first. Now filling out our budget first with these items does not necessarily make these items the first thing we pay, however, it is the first place that we tell our money where to go. Basically, we use our budget as a guidebook to where our money will go each month, and we make sure that these two items are funded first.

Step 5: Complete Your Budget - Throw Any Extra Money at Savings

After that initial budgeting process, we then fund the necessities. This includes the following:

  • Groceries
  • Mortgage
  • Utilities (Electricity and Water)
  • Household Items (Diapers/Shampoo/etc.)
  • Transportation (Includes Gas)
  • Daycare

The above list of items are the necessities. You must make sure that you are funding the above items first, before you pay for internet, television, cell phones or even clothing. Those items are all wants. You don't need them to survive, but they are nice to have. After making sure that we have the money to fund the necessities, we then budget for the wants:

  • Pet Supplies
  • Other Utilities (Internet, TV, Cell Phones)
  • Clothing
  • Eating Out
  • Kids Toys
  • Gifts
  • Games/iPads
  • Entertainment

After sitting down and funding the items listed above, we crunch the numbers. If there is any extra money leftover, we throw that extra money towards savings. Lately, we have been throwing that money towards the mortgage, emergency fund savings, college savings and our new car fund. This matches our goal of paying off our mortgage, buying a newer car, and funding our daughters college.

Step 6: Find a Budgeting Software that Works for You

My wife and I use Quicken. Not everyone is a fan of quicken, but I have been using it since college. Those habits can be hard to break. Other budgeting software that you can use:

  • YNAB (You Need A Budget)
  • EveryDollar - Created by Ramsey Solutions (A Dave Ramsey Company)
  • Thrifty - Created by Chris at Keep Thrifty.
  • Personal Capital

Step 7: Adjust as Needed

Don't be afraid to revisit and adjust your budget throughout the month. There are always things that can pop up that affects your budget. From a car repair or any other emergency expense, you have to be willing to rethink your budget as the month progresses.

We use the extra money that was to be thrown towards extra savings as our way to fund emergency expenses each month. Thus, as the month proceeds, we have seen our extra savings drop from a planned amount of $1500 extra to just $200 extra, because an unexpected expense arose.

Those months can be really frustrating, because we want to be saving. However, we are pretty lucky to have the cushion in our budget each month to fund emergency expenses without dipping into our emergency fund. 

What Steps Will You Take?

This is our savings process and it works really well for us. If you are struggling to save money, give it a try. If it doesn't work for you, find something else. We are lucky enough to be free and we can choose the steps we take in our own personal finances. Will you take the steps today to switch up your savings? Will you begin to set up a plan to reach your savings goals? 

Reaching the Financial Summit, Starts with You!


Sign up with your e-mail address to receive weekly news and updates

* indicates required

Powered by MailChimp