Beginner’s Guide to Budgeting

beginner's guide to budgeting how to budget

Beginners Guide to Budgeting

In this beginner’s guide to budgeting, I am going to discuss what budgeting is, the steps to create a workable budget, and how to succeed at budgeting. I’m also going to talk about common budgeting questions and answers.

Budgeting is so important to your financial success because when you get control of your spending by creating and then following a monthly budget, you gain control of what one financial expert calls your largest wealth-building tool: your income.

 

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How I Learned the Importance of Budgeting

Fifteen years ago, before I was interested in or knew very much at all about personal finance, I think that budgeting to me, if it meant anything at all, meant to not spend more than I had in my checking account. (And all things considered, that really is not a horrible place to start. :))

About a year after I graduated from college my husband had just started college, and we were taking an extracurricular class together that had nothing to do with personal finance overall. But as part of the class discussion that day we talked about compound interest, and that conversation changed the whole trajectory of my life.

From that time I became very interested in and then passionate about personal finance, and I read countless books and articles to learn all that I could about the topic.

I have now taught community personal finance classes (Ieading Dave Ramsey’s Personal Finance University), and my husband and I have also been able to use the knowledge we have about personal finance to pay off over $260,000 of debt in less than 10 years (including our mortgage!).

 

Why Budgeting Is Essential to Save Money

One of the most important foundational principles of personal finance is budgeting. By creating a budget, or a spending plan as it is also called, you are able to determine how you want to spend, or not spend, your money in order to accomplish the goals with money that you want to.

Personal finance in general and budgeting in particular are so important because money really touches every aspect of our lives. There is not much that we can do in this life that is not connected to or dependent upon money in some way. What we spend our money on indicates what is important to us. And how we spend our money really does determine not only our own financial future and influences some of the things that we are able to achieve but potentially also influences the financial futures of our future posterity, as well.

That is why understanding first what budgeting is and why it is important is so necessary to our financial well-being.

 

What Is Budgeting?

The first question I want to discuss in this beginner’s guide to budgeting is this: what is budgeting?

The word budgeting, unfortunately, has some pretty negative connotations associated with it for some people. Some people treat it as if it is the dreaded B word. Some individuals feel that a budget is constraining, that it takes all of the fun out of life. And because of that misconception, they choose not to budget, and so they are robbed of the power that comes from truly making your money work for you.

The reality is that a budget is nothing more than, as I mentioned above, a plan for the way that you  choose to spend your money. You get to create the budget and decide how much you are going to spend in each budget category.

How to Get Started with Budgeting

In this beginner’s guide to budgeting I am going to share 9 simple steps to make a budget that will actually work to help you save money and reach your short- and long-term financial goals.

1. Track what you spend as you work to make your budget.

Track what you spend for a couple of weeks or a month to really get a good feel for where your money has been going. This doesn’t have to be perfect; just do your best. Use a debit card to make purchases and pay bills as much as possible during this time so that you can go to your bank or credit union website to see what you have spent. 

Sign up below (after step 2) to receive a free spending tracker form to help you with this step! Easy peasy!

2. Start with a simple, hard-copy budget.

When you very first start budgeting, I recommend using a paper budget. This gives you a simple way to create your first budget by helping you to get a rough idea of what you would like to spend where.

Sign up below for a simple budget and spending tracker forms that will help you get started!

 

Once you get the hang of budgeting and have done it for a few months, go ahead and switch to a digital system if you prefer. Or if you really can’t stand paper and you prefer to do everything electronically, you can build a budget in Excel or use a program such as You Need a Budget (YNAB.com). It’s a great, user-friendly budgeting tool with a lot of awesome features.

 

Check out these related articles:

17 Must-Know Tips to Rock Your First Budget!
Budgeting Fail? Try This Simple Alternative to Budgeting
13 Surefire Steps to Help You Stick to Your Budget
9 Must-Know Tips to Help You Finally Start Saving!

 

3. List all income sources as you work to make your budget.

If you have a job where you receive regular paychecks, this step shouldn’t take too long. Simply add up all income (for you and your spouse), and write that number at the top of the page. Don’t forget to include freelance income and any money earned from second jobs, overtime, or side hustles.

4. List all of your expenses.

Then begin to list your expenses. Don’t forget to include tithing and charitable giving in this category.

Do a zero-based budget so that every dollar you have goes to a designated place. If you don’t, it’s almost certain that the unallocated money will get blown in one area or another. Be intentional with all of your money so that your money really works for you.

First list your regular, fixed expenses. Gather your regular bills, such as mortgage or rent payment, car payment, public transportation pass, utilities, health insurance premium (if not deducted automatically by your employer), cell phone bill, internet bill, car insurance bill, and so on.

Here is an easy list for reference of common fixed expenses you can use when creating your budget:

  • Tithing
  • Charitable giving
  • Rent or mortgage
  • Renters insurance
  • Homeowners insurance and property taxes (if not paid with the mortgage)
  • Car payment
  • Automobile insurance
  • Life insurance
  • Health insurance
  • Dental insurance
  • Internet
  • Cell phones
  • Cable/satellite TV
  • Home phone
  • Gym or rec center membership
  • Retirement savings

Then list your variable expenses. After you add up all of your fixed expenses, figure out your variable monthly expenses such as groceries, gasoline, household expenses, clothing, entertainment and eating out, pet food and supplies, and toiletries.

Here is an easy list for reference of common variable expenses you can use when creating your budget:

  • Groceries
  • Household items (cleaners, towels, and related items)
  • Eating out
  • Gasoline/fuel
  • Public transportation
  • Clothing
  • Utilities (electricity, natural gas, water, sewer, garbage)
  • Toiletries, makeup, and related items
  • Child care
  • Pet food and supplies
  • House maintenance
  • Home furnishings and appliances
  • Car maintenance
  • Education/tuition
  • Kids’ school or sports/music expenses
  • Entertainment
  • Electronics/toys
  • Recreation/sports and vacations
  • Hair care (stylist/barber)
  • Christmas and gift giving

 

5. Decide how much money you will budget toward savings.

It’s likely when you first start budgeting that you won’t have a lot of money left over to put toward savings. It’s OK to start small, but as quickly as you can, start increasing the amount that you save toward specific categories. And no matter how little your income, start saving something right from the beginning if you possibly can, to get yourself into the habit of saving.

As long as you make a little more than your fixed expenses each month, then determine a realistic amount to save, and save that portion of your income before you do anything else—known as “paying yourself first.” If you plan to just “save what’s left over,” the chances that you’ll have anything left to save are slim.

If you crunch the numbers and you really just don’t have anything left over to put toward saving (and then paying off debt once your starter emergency fund is funded—see the next section for more information) after paying all of your bills, then you should look at ways to earn additional income.

6. Fund your starter emergency fund (EF) first.

The first thing you should start saving toward when you make your budget is a starter emergency fund. This is a crucial next step because an emergency fund gets you out of the mode of relying on credit cards and it really does virtually stop emergencies from happening. It’s not that your car’s transmission never goes out or your roof never springs a leak, but those things are no longer emergencies—they are inconveniences because you have the money saved up to pay for them.

You should put all extra money above bare-bones expenses (that means zero or very minimal spending on eating out, entertainment, and so on) into your emergency fund until it is fully funded. Treat building up a starter emergency fund like an emergency!

If you have consumer debt, start with a small emergency fund of $1,000 to one month’s worth of expenses (depending on how likely you are to need the money—for example, scale upward if you have an older car or home), and pay off your consumer debt before you build your full emergency fund of three to six months of expenses.

Try to build up your $1,000 starter emergency fund in a month or less by slashing expenses such as your grocery bill and entertainment spending, by selling stuff, and by earning extra money through overtime or a doing a side hustle or second job.

Learn more about how to fund your emergency fund as quickly as possible.

After you have funded your starter emergency fund and have paid off all of your nonmortgage debt (discussed in the next step), start working toward your fully funded emergency fund and toward saving for large purchases.

7. Start working to pay off your debts.

Once you a starter emergency fund of at least $1,000, begin working to pay off your debts.

After you start budgeting and have all of your expenses written down on paper, you will start to see areas where you can reduce your spending (see this article for more than 20 areas where you can cut your spending!) in order to start paying off your debt.

Once you have a good handle on doing your monthly budget, try to set up your budget so that you can pay extra payments on your debt in order to have all of your nonmortgage debt paid off within 18 to 24 months—or faster, if you can! (You may want to find ways to increase your income or find things to sell in order to help you reach this goal.)

In order to pay off your debts, use either the snowball debt payment method or the avalanche debt payment method.

Briefly, the snowball method is where you list all of your debts smallest to largest and you pay just minimum payments on all of your debts except for the smallest one and then throw all of the money that you can toward that smallest debt until it is paid off.

Then once that first debt is paid off, you use the all of the money from your budget that you were spending on paying off that smallest debt to attack your next smallest debt. And then work to pay off the next smallest debt, and so on.

With the avalanche method, you similarly pay minimum payments on all but one debt, but the debt that you attack first is the one with the highest interest rate.

You will save on interest if you use the avalanche method, but I recommend that you follow the snowball method because of the motivation that comes from paying off the smaller debts first and getting the emotional boost from those relatively quick wins. The snowball method is the method we used to pay off more than $60,000 in nonmortgage debt.

However, choose the method that will be most motivational for you, and just get after that debt!

8. Adjust your budget categories if you overspend in an area.

Because you’re going to go off of a zero-based budget, if you decide you have to spend more in one area than you planned for, then you need to pull the money from another spending category.

So if something comes up where you need to spend more on your gifts category, for example, because you receive a wedding invitation, then the amount in your entertainment category or fun money or clothing category or eating out or somewhere else will need to be adjusted. Your budget needs to balance out.

9. Continue tracking your spending each month, and adapt your budget as needed over time.

It will probably take about three months to work out the major kinks in your budget, but then it will really start to work.

You should create a specific budget for every month because no two months are exactly the same, but once you’ve been budgeting for a while, your budget will be mostly set and you’ll only have to make minor tweaks from month to month.

However, when major events happen in life that cause big changes in your finances, be sure to adapt your budget accordingly.

How to Succeed at Budgeting

Another important thing to discuss in this beginner’s guide to budgeting is how to be successful at budgeting. To succeed at budgeting, here are 4 more important things you can do.

Automate Your Finances to Succeed at Budgeting

To avoid getting overwhelmed with budgeting and managing your money, automate as much of your finances as possible. I don’t have any bills that I regularly pay with a check—we use bill pay for all of our expenses, including tithing and charitable donations. Automating our financial transactions saves time and makes life much simpler (and helps me avoid forgetting to pay my bills!).

If you want to learn more about how to automate your finances such as bill paying, saving, and investing to simplify your life and start to build wealth, I recommend The Automatic Millionaire by David Bach. It’s one of my favorite personal finance books because it gives simple, actionable steps you can follow. And check out this article for more information on automating your finances.

Use Cash for Budget Categories You Tend to Overspend On

Some areas that you’ll probably want to use cash for in your budget include food, entertainment, clothing, and personal and family fun money. You can use envelopes to keep your cash for the week or month or a wallet with different compartments, or set up separate savings accounts for (most of) these budget categories, like we have. You can learn how to stop overspending here.

Budget to Save for Large Purchases and Expenses as Soon as Possible

If you do not have any debt and you have already created your fully funded emergency fund, then start to save toward other financial priorities. In order to stay out of debt and build wealth, you’ve got to be able to cover your expenses without borrowing money. This means you need to have the money saved to cover these costs with cash. For financial well-being, all families should have the following savings accounts in place and be regularly funding them.

  • Create a vehicle maintenance and replacement fund as soon as possible. Shorter term, funding your vehicle savings account prevents regular car maintenance and unexpected repair costs from becoming financial emergencies. And longer term, this fund helps you save thousands of dollars in interest by paying a car payment to yourself instead of to a bank or other lender.
    Learn how to buy a car with cash and how to get out of an upside down car loan. Learn how to save money on car repairs here and find more than 30 tips for how to save money on your vehicle here.
  • Create a house maintenance or down payment fund. If you are a homeowner (or plan to be a homeowner in the future), then this fund is a must. Eventually virtually everything in your home will need to be repaired or replaced. And some of those items are really expensive. Yes, homeowners insurance will take care of many things, but whenever you can, you should be your own insurance plan—you should self-insure by having savings to cover those inevitable expenses that will crop up. This will help to keep your insurance premiums as low as possible—so raise those deductibles! And there are some things that homeowners insurance simply won’t pay for (generally), such as burst water pipes, collapsed sewer lines, and damage caue by earthquakes, mold, floods, and more.
    Learn how to save money on housing here.
  • Create other savings funds. Here are some examples of other savings funds that we have and that I recommend you set up as soon as possible:
    • Save for vacations, Christmas, gift giving, larger household items (such as appliances and furnishings), and more. Once you have the essential items covered in your budget (food, clothing, shelter, transportation, and utilities, for example), begin saving for things like vacations, Christmas, household furnishings and appliances, and so on. The easiest way that I’ve found to do this is by having separate savings accounts for each category. Shortly after I got my first job I signed up for an ING checking account. What I loved about ING is that I could add as many different savings accounts as I want, and see them all together (and the sum total of the money in our various accounts). ING has since been bought out by Capital One, and even though I don’t generally recommend really big banks, I have to say that I’ve never had a problem with my Capital One 360 account. In fact, the one time I did have a problem (which was completely my fault—user error), they fixed it in about a minute. Their customer service was great. I know it’s going to sound a little crazy, but we have over 10 savings accounts for different things—for me, I just like to know we won’t accidentally spend money we have designated for one thing on something else.
    • Create a dream fund. When you are out of debt and have begun to save for all of the above items, begin funding your dreams. Doing so is helpful because learning to be financially savvy isn’t just so you can pay all your bills and retire with dignity and give to the causes you support—though all of those things are extremely important. It’s also so that you can really enjoy the many things money can buy, guilt free and without debt. This might mean saving for a motorcycle, a nice car, an RV, a boat, an exotic vacation—whatever you want. If you’re young or have a lot of debt it may be years before you can fully fund or maybe even start these savings funds, but if you keep it in the back of your mind, it will help you stay on track financially and help you reach important financial goals along the way.

Budget Money to Save for Retirement and Save for Kids’ College

There’s a saying in the personal finance industry that the best time to start investing was yesterday—and the next best time is now. So as soon as you can, start investing for retirement in a 401(k) or Roth IRA (or both!), and start saving for your children’s college expenses in an educational savings account (ESA) or college 529.

Related: Learn how to become a millionaire by investing just $200 a month!

Even if you start with just $100 a month, the savings begins to grow quickly, and by seeing the progress you make, you’ll be motivated to save even more. We have investment accounts with both Schwab and Vanguard. Both are inexpensive, excellent options to help you start investing for retirement and saving for college today.

Find more information about how to succeed at budgeting here.

Common Questions about Budgeting

I also want to discuss in this beginner’s guide to budgeting a handful of commonly asked questions and answers about budgeting.

How Do I Budget for Irregular Expenses?

As mentioned above, it is also important to include irregular expenses in your budget. So, if you pay for your life insurance once a year, for example, then you should divide the annual premium by 12 and then save that amount each year in a specific savings account just for life insurance (so that you won’t inadvertently spend the money on something else). You can save for your auto insurance, automobile registration, and other such expenses in the same way.

How Do I Budget If I Have an Irregular Income?

If you have an irregular income, then base your budget on your earned income for the lowest month from the last 12 months. Then make sure that you also write a list of the priorities for the additional income that could come in. Put any extra money that does come in toward those priorities, in order from most important to least important (such as paying off your smallest debt) until the money runs out.

What If I Regularly Overspend the Budgeted Amount in a Particular Category or Categories?

If you are regularly spending more than the allocated amount in a budget category or categories, then this may mean that you are not being realistic about the budget category. For example, if you regularly budget $500 a month for groceries but you always spend closer to $600, then you may want to decrease another budget category or categories to have more money available for groceries. Or, alternatively, you can find ways to save money on groceries (find more that 70 tips here!).

That is true for whatever budget category you are overspending on. Chances are very good that you can lower the amount of money you spend if you really want to. You may need to find the motivation to save the money by finding meaningful long-term financial goals to work toward.

You can find more than 20 ideas for how to reduce your spending (for virtually every budget category) here. You can also find information on how to stop overspending here.

The issue could also be a lower than average income. If you make a low income, then one of your long-term financial goals needs to be to increase your income.

What If I Have Expenses That Do Not Seem to Fit in Any Budget Category?

It’s OK to have a small amount of money budgeted each month toward a “Miscellaneous” or similar category. We budget about $50 per month toward miscellaneous expenses (we don’t spend that much on miscellaneous items every month, but some months we spend more than that, so it balances out). This is basically like an “other household expenses” category for us. If you are budgeting much more than $100 a month, you probably need to take a look at what the money is going toward and make another budget category for that item or those items.

What Is the Best Budgeting Tool or Best BudgetingApp?

Because we started budgeting so long ago, we have always used a simple Excel spreadsheet that my husband created years and years ago that we just updated as we needed to with different categories (such as when the kiddos came along). However, after researching the different apps out there, if I were going to use an inexpensive but paid app, I would go with You Need a Budget (YNAB.com). They use a zero-based budget and even encourage you to get to the point where you are budgeting off of last month’s income, both of which I strongly encourage. They have really good reviews, and their app seems both robust and user friendly.

 

Conclusion

If you want to be able to have financial peace and stability and eventually reach financial freedom, you have to be able to have money left over after your spending to save and to invest. And in order to do that, you have to master a budget or spending plan. If you want to win financially, as with any area of your life, you have to make a plan and stick to it. You can find information on how to stick to your budget here.

What questions do you have about how to make a budget or how to start budgeting? Have you tried to budget before and not been able to stick with it? Leave a comment below and let me know how I can help!

 

Invitation to Share

Was there something in this article that inspired you to change something about your money? Are there ideas or tips that you feel could help others? Would you please take a minute to share this article via email or social media? I would love your help to share these principles of financial well-being. Thank you!

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Money Challenge: 11 Best Challenges to Save Money Fast!

money challenge

Money Challenge

Are you looking to do a money challenge in order to save more money or save money fast? In this article I am going to share some of my favorite money challenges that can help you to reach your financial goals!


 

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Money Challenge: 5 Simple Money Challenges to Help You Save!

There are a lot of great benefits to doing a money challenge! They can help you to save more money or to save money quickly, and they can help you to break money habits that are preventing you from managing your money well and reaching your financial goals. In this article I share some of my favorite money challenges!

 

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1. The no spend challenge

Probably my favorite money challenge is the no spend challenge. One huge benefit of doing a no spend challenge is that it is a great way to pay off debt fast or save money quickly! Do you have credit card or other debt you need to get rid of? Do you want to pay down your auto loan or your student loan debt? Get it paid down by participating in a no spend challenge!

Do you want to save money quickly to take a trip, pay for needed home maintenance, or pay for another large purchase or expense with cash? This money challenge is a great way to save quickly for those things, too!

A no spend challenge is where you go for a week, two weeks, or even a month or more either without spending any money at all or without spending money on anything besides the bare essentials or without spending money in a particular category such as groceries or clothing.

Note: Learn how to save $500 a month with 5 simple frugal living hacks!

By participating in a no spend challenge, you can save a lot of money that you can use toward things like:

A no spend challenge has the potential to not only help you save money (sometimes a lot of money) but it can also really help you change the way you look at money and potentially even change your whole financial future.

Read on to learn how to complete a no spend challenge successfully!

And don’t think that you can’t have any fun during a no spend challenge! There are still tons of fun things that you can do! Find more than 90 free and fun activities that you can do during a no spend challenge here!

 

Check out these related articles:

How to Get (and Stay) out of Debt!
17 Must-Know Tips to Rock Your Budget
13 Top Tips to Help You Stick to Your Budget
16 Best Tips to Help You Stop Living Paycheck to Paycheck
15 Top Tips to Help You Finally Stop Overspending
31 Budget-Friendly Easy and Cheap Dinner Recipes for under $5
42 Cheap and Easy Budget-Friendly Meals for under $5
73 Easy Ways to Save Money on Groceries without Coupons!
151 Easy Ways to Save Money: Your Ultimate Guide to Saving Money!

 

2. 30-day money challenge

The 30-day money challenge is another great way to save money fast. 

With the 30-day challenge, you work to save as much money in a month as possible by cutting spending in various areas.

There are many, many ways that you can save money (here are more than 150 ideas for easy ways to save money!), but here are some of the main ones where you can really make a difference in your spending:

Find more information on this topic and 13 ideas for how to save money fast!

To learn how to start getting control of your finances and really start winning with money, get my free Save Your Money, Change Your Life ebook. Sign up below! This book will teach you how to earn more, save more, spend less, and invest more in order to right your financial ship, gain financial stability, and work toward building prosperity and wealth and reaching ultimate financial freedom.

3. The 52-week money challenge

There are a number of ways that you can do a 52-week money challenge. One of the most fun may be to start by depositing just $1, and then increase that amount each month by $1. So the first week you deposit $1 in your savings account, the second week you deposit $2, the third week you deposit $3, and so forth. By the last week you will deposit $52, and your total money saved with just this simple money challenge will be $1,378! Pretty awesome, right?

This could be a great way to save up for something like a paid-for vacation, new appliances or furniture you want to buy, a simple home remodeling project or renovation, and more!

For a simpler 52-week money challenge, you can commit to save some realistic amount each week, such as $25 or $50. If you saved $25 a week for 52 weeks, you would have $1,300. So you would save about the same amount as with the money challenge above, the math would just be easier. 🙂 If you saved $50 a week, you would have $2,600, and that would likewise be a great achievement!

Another 52-week money challenge, though this one requires a pretty serious savings commitment, is to save $100 each week for 52 weeks. By the end of the year, you have saved $5,200! That is pretty amazing! Yes, it will take discipline and dedication and managing your monthly budget well (learn how to start budgeting here!), but it could help you fund some amazing things! For example, this is an excellent way to nearly max out your Roth IRA. Find awesome tips for how to fully fund your Roth IRA this year here.

Haven’t really started investing yet? Learn 5 simple steps (and get the new investor cheat sheet!) to start investing here!

 

4. Reverse 52-week money challenge

The 52-week money challenge is a fun and simple way to save money, but it does get progressively more challenging as the year continues. The reverse 52-week money challenge is in some ways easier because you start out saving $52 the first week, then $51 the next week, then $50 the week after that, and you decrease the amount that you save each week by $1. So by the last week of the challenge, you only need to save $1. If you are like me and like to get the hard stuff out of the way first (for example, I always like to run uphill first so I can run downhill at the end when I don’t have as much energy; just makes sense, right?), then this may be a great alternative for you.

 

5. The spare change challenge

The spare change money challenge is just like you are probably imagining—with this challenge you save in a jar or jars (or plastic bottles; whatever you have on hand) all of the change that you collect in a specified amount of time, such as six months or a year.

One big benefit of this challenge is that you have to use cash to do the challenge. And a huge benefit of using cash is that it can help you to be more intentional with your spending because you actually see the money leaving your wallet or purse. It is often easier to swipe a debit card and pay $7 for lunch or $9 for a cute blouse that is on sale than it is to see that same amount leaving your wallet and to see your bills dwindling down.

For that reason, some financial experts, like Dave Ramsey, are big advocates of using cash envelopes especially for categories like groceries, eating out, entertainment, and fun (spending) money.

But even if you don’t like to use cash, you can still take advantage of this money challenge by using an app such as Chime or Qapital. With these apps, they take your spending transactions and round them up to the nearest dollar, and that amount goes into savings. If you want to go even beyond saving, you can check out an app like Acorns, where they actually invest the difference instead of saving it. 

 

6. The $5 or $10 money challenge

This is another pretty simple and potentially fun challenge. With the $5 challenge, you save all of the $5 bills that you get throughout the year (or for some other specified amount of time, such as six months or three months). Similarly, with the $10 challenge, you save all of the $10 bills that you get throughout the year or for a designated amount of time.

 

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7. Summer vacation saving challenge

 

Do you know the best kind of vacation? It’s the kind of vacation that doesn’t follow you home in the form of credit card payments. 🙂

 

In order to plan a less stressful summer vacation this year, set up a travel or vacation savings fund (learn how here!) so that you can enjoy a debt-free, fret-free summer vacation!

 

Related article: Find 23 easy ways to save money on your next vacation!

 

 

 

 

8. Christmas money saving challenge

 

Another great money challenge is to save for a debt-free Christmas! Before you begin your Christmas money-saving challenge, figure out how much you would like to spend on Christmas (and also consider if you could maybe spend less on Christmas). And then determine how quickly you can save that amount. So if you would like to save $1,000 for Christmas and you want to save that amount in about 3 months, by say Thanksgiving weekend, then you save about $83 a week to have your $1,000. Or if you want to spend $500 on Christmas, you could save just $40 or $50 a week for three months.

 

Also check out this article on 5 simple steps to save for a debt-free Christmas and consider doing a November no spend challenge to save money for a debt-free Christmas!

 

 

 

9. Save $5,000 money challenge

 

For this money challenge, your goal is to save $5,000 in a specified amount of time. Probably the most popular $5,000 money challenge is to save $5,000 in a year. You can of course use whatever increments you want (such as those used in this $5,000 money challenge found on one of my favorite money gurus Clark Howard’s website), but I like to keep things simple. So my favorite $5,000 money challenge is to simply save $100 a week (and then you either end up with an extra couple hundred dollars after a year, or you can have a week or two where you can take a bye, such as the week of Christmas).

 

 

 

10. Save $10,000 money challenge

 

The $10,000 money challenge is not for the faint of heart! Again, I like to keep things simple, so my preferred $10,000 money challenge is to save $200 a week (and then, again, you can have two weeks off where you won’t need to save the $200. Another pretty simple way to do this is to save $125 every first week of the month, $150 every second week, $175 every third week, and $300 in the fourth week. With that challenge, the last month you need to save a little more aggressively; you would save $200 the first week, $225 the second week, $250 the third week, and $325 to finish off your $10,000 money saving challenge.

 

Saving $10,000 in a year is not easy, but it is an amazing way to save up the money to reach awesome financial goals like saving for your emergency fund, buying a car with cash, or saving up the money for a down payment on your first home!

 

Check out this related article: How to Save for Large Purchases (and Why You Need To!)

 

 

 

11. Retirement savings challenge

 

And finally, another great money challenge is to do a retirement savings challenge. One easy way to do this challenge is to increase the percentage of your paycheck that goes to retirement by 1 percent each month. So if you are not currently saving for retirement, you would start with 1 percent the first month, and by the 12th month, you would be saving 12 percent of your paycheck toward retirement. That is an awesome accomplishment!

 

You can learn 5 simple steps to start investing for retirement here. In this article I will walk you through the types of retirement accounts I recommend, the types of mutual funds I recommend, the amount that I recommend that you invest for retirement, the brokerage firms I recommend, and more!

 

And sign up below to join the 5-day Invest Your Money challenge and start your path to investing success today!

 

Conclusion

Doing a money challenge is a great way to make saving money fun! And it can be a good way to save money fast, as well!

Make a goal to participate in one or more of these money challenges, and jump-start your savings today!

For even more ways to save money, check out these related articles:

12 Best Tips to Save Money on Entertainment
91 Fun, Free Activities to Do during a No-Spend Challenge!
151 Easy Ways to Save Money: Your Ultimate Guide to Saving Money!
5 Super Simple Steps to Save $1,000 for a Debt-Free Christmas
11 Ways to Save Big on Your Christmas Shopping
4 Powerful Principles of Gratitude to Change Your Financial Life
Contentment: 9 Powerful Principles That Will Help You Save More Money and Reach Financial Success
9 Tips That Will Help You to Win with Money

 

Are you ready to a money challenge?! Leave a comment below (and post a comment in our new, closed Facebook group!) with your money-saving goal! I can’t wait to hear about the great things that you will accomplish with the money you are able to save!

 

Invitation to Share

Was there something in this article that inspired you to change something about your money? Are there ideas or tips that you feel could help others? Would you please take a minute to share this article via email or social media? I would love your help to share these principles of financial well-being. Thank you!

Join Our Facebook Group!

Join our closed Families for Financial Freedom Facebook group to get support and share ideas for how we can all improve our financial well-being by earning more, spending less, saving more, and investing more and reach our financial goals. You can do this! And we are here to help.

How to Save for a House: 13 Simple Tips to Save Your Down Payment!

how to save for a house

How to Save for a House

In this article I am going to discuss how to save for a house. Learn 13 simple tips for how to save money for your first house (or your next house)! With these easy steps, you can save money for the down payment for your home in no time! These tips for saving to buy a house will help you to make your dream of becoming a homeowner a reality. 🙂

 

Tip: Save the image above to Pinterest so that you can easily refer to this article on how to save for a house later!

 

13 Simple Tips on How to Save for a House

If you are looking for how to save for a house, then this article is for you! Here are 13 of the simplest and best ways for a family or individual to save for a house.

For most families, housing is their largest expense. So the more money that you can save and the bigger you can make your down payment, the better so that you can reduce your monthly house payment and pay off your mortgage more quickly! #debtfreeisthewaytobe

As I write this article, the housing market is back up in Crazyville again in many areas in the U.S.meaning that prices and demand are high. It’s a seller’s market. But you may still want to buy a home, and you may be in a good financial position to do so.

If you are financially ready to buy a home, then the sooner you start saving for your home, the better because the bigger a down payment you can save up.

So if your family is ready to start saving for your first home (or to upgrade your home), even if you’re not looking to buy for a few years or even several years, here are 13 steps you can take to save for a house.

 

1. Earn a steady income.

Before you even begin to save up to purchase your first home, it’s crucial that you have a steady, reliable income.

Check out this article for 11 simple tips to make more money.

 

2. Have a fully funded emergency fund (EF) in place before you begin to save for a house.

Before you begin saving for a house, you should also have at least a three- to six-month emergency fund that could cover basic expenses for that period of time in case something were to happen to cause you (or your spouse) to lose your income for a time or in case you had to replace an expensive item such as your car or had a major medical bill.

Having a large emergency fund is primarily so that you can be prepared financially in case something happens to you after you buy your home so that you don’t miss payments and risk losing your home to a foreclosure, but having substantial savings will also help you qualify for financing for your mortgage and will help you get the best mortgage interest rates.

It will also be very helpful if you discover there are things that you need to fix once you move into your home (that aren’t covered by your homeowners insurance—which can definitely happen and did happen to us shortly after we purchased our second home).

 

 

3. Start to save for your house.

Once you have a full emergency fund, start saving aggressively for your home purchase. Depending on your timeframe, determine which saving method will be best for you. For most people, their timeframe is probably around five years or less, so that means that you should save the money for your down payment in a simple savings account.

I recommend an online bank like Capital One 360 where you can open separate savings accounts for your various financial goals. Learn how to save for large purchases and expenses (and why you need to!) here.

On the other hand, if you know that your timeframe is more like 6 to 10 years (or longer) before you wil likely buy your home, then you can look at investing the money (learn how to start investing here) in good mutual funds instead of simply saving it in a bank savings account. That is what we are doing to save for our next home, which will probably be worth 1.5 to 2 times the value of this one and which we plan to buy in 5 to 8 years for cash. (Learn more here about my favorite way to buy a house—the 100 percent down plan!) We have investment accounts through both Charles Schwab and Vanguard.

Both are excellent companies with great customer service and very low fees. And you can transfer money, for free, easily from your checking account to either of these two brokerage firms.

Want to learn how to set up an account and start investing in good growth-stock mutual funds? Fill in the information below to receive my free investing cheat sheet!

 

 

Are you new to investing? Sign up below for the simple 5-day Invest Your Money mini challenge! Learn the basic principles and steps to start saving for retirement and to build wealth! Learn the basics of how to invest to reach your long-term financial goals.

 

 

Check out these related articles:

33 Must-Know Tips for How to Save Big on Housing Expenses

3 Simple Steps to Save to Pay Cash for Your Next Car (and Get Rid of Car Payments Forever)!

 

4. Figure out how much you can comfortably afford to pay for your home purchase.

Another important tip related to how to save for a house is that you be careful to not buy a house that is too expensive that will leave you house poor, you need to be realistic about what you can truly afford.

I know it’s not that common, but try to save up a 20 percent down payment so that you can save a bunch of money on interest during the life of the loan and so that you can avoid having to pay private mortgage insurance (which is where you pay a monthly fee because a lender was willing to take on more risk by allowing you to purchase a home with a smaller down payment). If you feel a 20 percent down payment isn’t realistic, try to save up at least 10 percent.

I know that saving up a substantial down payment takes more time and discipline than having a smaller down payment, but there are things you can do to reduce your current housing expenses, food expenses, utility bill, transportation expenses, cell phone bill, entertainment spending, and more so that you can make this a reality. And you can also work to boost your income as you save up for your home in order to reach more quickly your goal of home ownership.

Keep your estimated mortgage payment (including principal, interest, taxes, and insurance, or PITI) to no more than 25 percent of your take-home pay. (If you tithe or if you give a large amount to charity, deduct this amount from your take-home pay, as well, before doing your calculations so you’re budget will be less stretched.) That way, you will avoid buying a house that you cannot truly afford and that will keep you from having financial peace and reaching other awesome financial goals like saving for a comfortable retirement and helping to pay for your children’s college expenses so that they can avoid the awful burden of student loan debt.

 

5. Plan for maintenance expenses.

Then make sure you also include in your monthly budget a reasonable amount that you can save each month for needed maintenance and repairs on your home. Financial experts recommend that you save at least 1 percent of the purchase price of your home each year for these maintenance-related expenses. So if you’re looking to buy a $200,000 home, you should plan to save at least $150 a month for maintenance and repairs. Again, put this money in a separate savings account so that you won’t be tempted to spend or accidentally spend it on something else.

 

6. Choose a 15-year mortgage over a 30-year mortgage.

I strongly recommend that you take out no more than a 15-year mortgage. By sticking with a 15-year or less mortgage, you’ll save a ton of money on interest, not just because of the decade and a half that you’ll save in making payments (the vast majority of which in the early years goes to interest, thanks to front-end-loaded amortization [front-end loading the amount of interest you pay on your loan]—yikes!) but because you’ll also pay a lower interest rate because the bank is taking on less risk.

So, for example, if you take out a $200,000 15-year mortgage in today’s market (at about a 4 percent interest rate), you’ll pay about $1,471 a month on principal and interest. And you’ll pay $66,287.64 during those 15 years on interest. (That’s a lot of interest!) But if you instead get a 30-year mortgage at a 4.5 percent interest rate, you’ll pay $1,013 a month in principal and interest, so your payment won’t be as high, but you’ll pay an insane $164,813.42 in interest over the life of the loan. That’s getting close to the amount you paid for the house itself. Not cool! Just take a 30-year mortgage off the table. That’s what normal people do who are OK staying in debt for literally the rest of their lives. But you are not normal. You are on your way to being a financial rock star.

So, let’s look at a hypothetical situation. If you make a combined household income of $4,500 a month after taxes and taking out money for tithing or charitable giving (and after taking out money for health insurance premiums or other monthly expenses you have if they’re substantial), then your maximum monthly payment should be $1,125 a month. But then make sure to run the numbers so that you know that you can also save an additional $125 or more a month toward maintenance and repair costs.

And also don’t forget that your monthly utility bill will likely be higher, and you may have other fees such as homeowners association dues. Be sure to consider all of these expenses when you are working toward buying your home so that you don’t get taken by surprise and so that you, again, don’t buy more house than you can comfortably afford.

 

7. Research the neighborhoods you want to live in.

Next, start looking at the areas where you would like to live (that you can afford). If you find that the neighborhoods you can afford aren’t the ideal neighborhood you would like to live in, see where you might compromise on your wish list. For example, maybe if you reduce the square footage or the number of bedrooms or bathrooms, you can still be in one of the neighborhoods you prefer. Or maybe you could look a mile or two over, and still be in a pretty good neighborhood.

When my husband and I bought our current home, we wanted to have a good-sized lot and we (or really I :)) wanted to be very close to my work, and we wanted to have a mortgage that we could comfortably afford on one income, following the guidelines outlined above. So we decided to live in not as nice a neighborhood as we would have preferred (but still safe). But we also have a big dog and we got an awesome, inexpensive alarm system (check out SimpliSafe; they have been great, and we pay only $15 per month!) that doesn’t require a landline or contract, and we’ve never had any problems with vandals or break-ins. So for us, the compromise was worth it.

 

8. Budget for other expenses related to buying and owning a home.

Another important thing to remember as you consider how to save for a house is to remember to save for expenses and purchases related to moving into your new home.

If you’ve always lived in a furnished apartment, the expenses related to purchasing a home might come as a bit of a shock. Many items are not included with a typical home purchase, such as furniture and many of the standard appliances. Depending on your willingness to buy used or less-expensive furniture and appliances, you may need to spend several hundred or even several thousand dollars after you move into your new home in order to furnish it. You may very well need everything from curtains and blinds to washer and dryer to beds and linens and dressers to couch and loveseat to towels and knickknacks for the spare bathroom. Do your best to estimate how much the items you will need to buy will cost, and start saving for them as you are saving for your down payment.

 

9. Have enough money saved to cover unexpected expenses after you move in.

Even with planning for the known expenses of moving into your first home, there are probably going to be some things you can’t plan for. Even if you have a home inspection done (which you definitely should do!), it won’t be able to tell you everything about your new abode. Of course your emergency fund can cover these unexpected expenses, but personally, I do not like to have to pull money from my emergency fund—I would rather have additional money set aside so that I don’t ever have to touch my emergency fund.

If you can save an additional $1,000 above the cost of your down payment and the money to buy your needed furniture and appliances, you will be able to cover the majority of unexpected expenses that might come up.

 

10. Think about your future income and circumstances.

So many people buy a house based on their current situation, but they don’t think about how their circumstances might change in 3 or 5 or 10 years. For example, I know of a few different situations where a young couple bought a home shortly after marriage, when both spouses were working. And they qualified for a mortgage based on their combined incomes. But then when they decided they were ready to have children, the mother either stayed working when she wished she could be at home, or she quit her job, and things were extremely tight financially.

If you know that you are going to want one of the parents to be able to stay home and to be a single income family at least for a time, then plan for that by purchasing a less-expensive home. Or if you know you want one of you to be able to work only part-time, then plan for that.

When we bought our first home and then also with our second home, even though my husband was working part-time and going to school, we bought them solely based on my income because we knew that we wanted one of us to be able to stay home to be with our children (and he just got to be the lucky—blessed—one to be able to do it!).

Learn how to live on one income here.

11. Plan to buy something you can stay in for at least 5 to 10 years (and longer is even better!).

In order for you to really benefit financially from your home purchase, you need to build up a decent amount of equity that you can use as a good-sized down payment for your next home. This is particularly important if you’ll want to upgrade a little when you make your move.

When you buy a home, you typically pay several thousand dollars in upfront closing costs, so between that and the very small amount of money that goes toward principal in the early years (remember amortization, that I mentioned above), you really don’t build up much equity in the early years of your mortgage.

But the longer you stay, the more principal you pay down, and the more money you’ll have when you are ready to sell (assuming home values have generally risen during the time you own the home).

So if you know that you want to have children in a few years, for example, don’t buy a one-bedroom (and maybe not even a two-bedroom) townhouse. Buy something reasonably priced that you could stay in for 10 or 15 years or longer, in case that ends up being what makes the most financial sense or the most sense for your family. Be patient, and wait to buy a home till you can afford something that you would feel good about staying in for 5 to 10 years at least—and the longer the better.

Don’t listen to the hype that you’ve got to buy a house right now—got to buy a house, got to buy a house! There are houses on every corner, and they will be there in three or five or ten years when you are ready to buy. When you are ready to buy—not when everyone else tells you you should buy.

 

12. Know what you’ll be getting yourself into financially.

Also as you are planning how to save for a house, keep in mind that the purchase of the home is just the beginning of your home-related expenses.

As I mentioned briefly above, do your homework so that you know what expenses and costs to expect when you buy your home and also as a new homeowner. Make sure you understand the different closing costs and interest rates and the expenses you’ll need to be prepared to pay when you make your first home purchase.

For example, as a new homeowner, in addition to needing to pay maintenance and repair costs for your home and also for appliances and furnishings, you also might have homeowners association (HOA) or other fees, and you’ll have property taxes and homeowners insurance. So make sure you’re familiar with all of these expenses and that you know about how much they’re going to cost you every month or year so that you can budget accordingly.

Learn how to create a simple budget (that will actually work!) here.

 

13. Trim your other expenses as you work to save up to buy your first home.

As you save up the down payment for your home, rent as cheaply as you can and also cut expenses in other areas. For example, you could reduce your spending on your groceries, eating out, entertainment, your cell phones, your utilities, and more.

Sign up below for our free money-saving guide to find hundreds of tips for ways you can save money on food, housing, transportation, utilities, cell phones, clothing, entertainment, and more and find easy ways to manage your money and reach your financial goals!

 

Conclusion

I hope you have the information you need now about how to save for a house and that you feel confident and ready to start saving for your first home purchase.

Saving up for and buying your first home is an amazing accomplishment! This is a very exciting time in your life! As you can see from the list above, there’s a lot that goes into this very important financial move (no pun intended! :)). There are many cases where spending the money to buy a home is well worth it.

Just make sure you know as much as you can about what you are getting yourself into—and don’t buy before you are financially ready to, no matter what outside forces you may be feeling to buy as soon as possible.

As you consider making your first home purchase, remember these important items: do your homework, make sure you have an emergency fund in place, think about your likely future circumstances and plan accordingly, don’t get a mortgage that is more than 25 percent of your take-home pay (and preferably the take-home pay of only one of the spouses), don’t get buyer’s fever and overspend your budgeted amount, and don’t forget to budget for the expenses related to purchasing a new home (such as buying furniture and paying for routine maintenance work to be done) and for unexpected expenses that might arise.

 

 Do you have any questions questions about how to save for a house? Which of these tips on how to save for a house do you think will be most helpful to you? Leave a comment below and let me know!

 

Invitation to Share

Was there something in this article that inspired you to change something about your money? Are there ideas or tips that you feel could help a family member or friend or people in general? Would you please take a minute to share this article via email or social media? I would love your help to share these principles of financial well-being with others. Thank you!

Join Our Facebook Group!

Join our closed Families for Financial Freedom Facebook group to get support and share ideas for how we can all improve our financial well-being by earning more, spending less, saving more, and investing more and reach our financial goals. You can do this! And we are here to help.

9 Simple Steps to Help You Finally Start Saving Your Money

how to start saving money

 

 

How to Start Saving Money

It definitely is not always easy to figure out how to start saving money. For many people, saving money just does not come naturally.

A recent study found that 78 percent of Americans live paycheck to paycheck. Another study found that 40 percent of Americans could not cover even a $400 emergency expense. And more than 60 percent of Americans could not cover a $1,000 unplanned expense. These are scary statistics! When you don’t have any savings, when you don’t have any buffer between your family and the bad things that happen in life, that can be a frightening place to be. I know; we have been there too!

And on the flip side, when you figure out how to start saving money, and then you actually do start saving money! :), you can really begin to do some awesome things. You can build financial security. You can ensure your children don’t have the burden of student loan debt. You can know you will retire with comfort. You can ultimately achieve financial freedom!

No matter what your current financial situation, the steps below will help you to know how to start saving money so that you can go from where you are to where you want to be.

 

Tip: Save the image above to Pinterest so that you can easily refer to these tips on how to save money later!

 

9 Best Tips for How to Start Saving Money

 Here are 9 important steps you can take that will help you to start saving money today!

 

1. Figure out your why for wanting to save money.

Why. That one little word is incredibly powerful. Understanding your financial why may be your most powerful tool for getting you to save money, and that’s why we’re talking about it first.

The reason it is so important is that in order to change old habits and start new, better habits, we’ve got to have a very strong motivation—and that motivation, for many people, is their why. To learn more about the power of why, I highly recommend the book Start with Why, by Simon Sinek. It is (and all of his books are) an excellent read.

In order to be effective, your why has to be powerful—more powerful than your urge to buy stuff or do things that you can’t really afford—or better put, that jeopardize your long-term financial stability or goals. Maybe your why is to have financial security, have one parent be able to stay home with your children, be financially independent early on in life, live in comfort (or luxury) in retirement, be able to give very generously to worthy causes, be an awesome example of managing money well to your kids, or be able to retire early to travel, volunteer, or spend time with your children and grandchildren.

For me, my financial whys are very strong motivators. One of my current financial goals is to be able to get this blog to the point where it can replace my full-time income so that I can be home all day with our three little cherubs. Even though I love my current job, being able to be home with our children is something I want even more, and so I’m willing (very willing, really) to make sacrifices (of sleep, mostly, and “me” time) to make that hope and dream a reality. And then they aren’t really sacrifices at all—they’re just choices I have made that I am very happy to live with.

When your motivators are strong enough, you will choose to get control of your money and start saving. And I’m here to help you every step of the way.

 

 

2. Set financial goals that will inspire you to save your money.

What are you big financial goals and dreams? What is it that you could do with your money that just makes you giddy when you think about it? Whatever those things are, make a plan, and work toward reaching them.

If some of the goals you initially thought of aren’t getting out of debt, building an emergency fund, and investing for retirement, then add these goals to the list. Those are the financial pillars that will allow you to attain long-lasting financial stability and success.

 

3. Differentiate (honestly) between needs and wants.

If you are painfully honest with yourself, you’ll likely recognize that much of your spending is for things that you want but not that you truly need. You probably already have a closet full of clothes, a car that can get you around for many years to come, and gadgets and toys and home furnishings that make your home or apartment burst at the seams.

So the reality is that you could probably go a long time without needing to buy anything at all besides food and gas for your car and very basic things like that. To break yourself of mindless, needless, or even reckless spending, do a no-spend challenge for a couple of weeks or a month. The savings can be dramatic, and the change to your mind-set monumental. Or if that seems too extreme, start with a no-spend week. Learn more about how to do a no-spend challenge.

For more information about differentiating between needs and wants, read this article.

4. Reduce your spending.

You can probably reduce your spending in almost every area, if you become very intentional with your money. There are so many ways to reduce your spending, in fact, that I’m not going to list them here because it’s enough great content to be an article all on its own (and now I have written it; check out these 150+ easy ways that you can save money!). For a great list of ways that you can start spending less money in different areas, read this article with more than 20 ideas on how to reduce your spending in various budget categories.

But here are just a few ideas to get you started:

 

Check out these related articles:

 

5. Increase your income.

Even though I strongly feel that reducing your spending is the most important part of the money-problem-solving equation (because you can always outspend your income, no matter how high it gets), increasing your income is a great way to turn your finances around more quickly and has a higher potential impact. Overall, you have a lot more control over how much you earn than how much you spend. There is only so far you can realistically cut your spending, but the amount of money you can earn is nearly limitless. (That’s one of the reasons that being a blogger and writer and business owner is so exciting!)

In rare cases, the problem truly is a lower than sustainable income. If that is the situation you are in, then know that you’re not stuck. You can start taking small steps to increase your income so that in two or five or ten years your financial situation is drastically different than it is today.

You may need to get a second job temporarily. If only one spouse is working in your household, the other might want to get a night job or work-from-home job to help make ends meet and help reach your financial goals. Longer term, you’re probably going to want to look at training or education and career moves that can help boost your income.

If you do not have a college degree, it may make sense to sacrifice to get one. Though a college degree is not a guarantee of a high-paying job, statistically you are likely to make more money, and sometimes significantly more, by earning a degree. Just be smart about it and earn a degree where you gain an actual marketable, high-demand, well-paying skill.

Here are some simple ideas for things you can do to make more money starting today:

  • Work overtime. If you have the opportunity to do so, working overtime is a great way to help you to save money quickly.
  • Ask for a raise or promotion. If it’s been a few years since you received a significant raise and you’ve been an exceptional employee at work, make a list of your contributions and your accomplishments, and schedule a meeting with your boss to request a raise or a promotion. Focus on ways that you’ve earned the company money or saved them money. If you learn that a raise or promotion isn’t going to happen right away, ask what specific steps you can take in the next year or two to make it a reality. Read this article for more information on how to seek a raise or promotion.
  • Do freelance work. If you work in a field that lends itself to doing freelance work, take advantage of that opportunity to earn extra income to help you save money fast! I have been doing freelance writing and editing since before I graduated from college with my English degree and editing minor, and doing freelance work has not only helped me gain experience in other areas besides what I do for my full-time job but has also at times (when I wanted to give the time to it) brought in significant additional income.
  • Do coaching or consulting. Similarly, if you have job experience or a skill that lends itself to coaching or consulting, put that skill to use! Popular areas for consulting include human resource (HR) consultant, public relations (PR) consultant, marketing consultant, business management consultant, and accounting consultant. Popular areas for coaching include financial coaching, job coaching, personal fitness coaching, and leadership coaching. Look for opportunities on indeed.com or your favorite job website.
  • Get a (second) job. If one spouse is available to get a second job in the evenings or on Saturday, for example, then this is another great potential way to earn additional income. And if you are a one-income family, or if one of you works only part-time, you might want to consider reentering the workforce or going full-time temporarily in order to save money more quickly.
  • Start a side hustle. If you would rather earn money without working another regular job, there are a lot of things you can do to earn a little extra income with a side hustle. Some ideas include starting your own small business where you turn a hobby into a money-maker, being a virtual assistant, or driving for Uber or Lyft. Learn how to start a side hustle and find out about many side hustles that you can explore.
  • Start a money-making blog. The potential for significant income is one of the reasons that I started this blog. If you love helping people and enjoy writing, being a blogger might be a great fit for you. In addition to great income potential (check out these amazing income reports of bloggers who make $10,000 to $100,000 or more per month!), there are many other benefits of being a blogger, such as being able to be your own boss and work on your own schedule. Learn how to start a blog for less than $5 a month.
  • Earn passive income. Some options for earning passive income are to create a product you have someone sell, write a book, create a money-making podcast or vlog, develop an online course, or participate in affiliate marketing. Read this article to learn more ideas for earning passive income.
  • Use rebate apps like Ibotta and Ebates. With rebate services such as Ebates and Ibotta, you can earn money by shopping for things and at places where you would shop anyway. With Ebates, you generally buy items through their website to save up to 40 percent on purchases. It is primarily an online service. Ibotta, on the other hand, is an app you use primarily after you make purchases at brick-and-mortar stores. Because of this, you can actually sign up for and use both apps to save on purchases. Sign up for a free Ebates account here, and sign up for a free Ibotta account here. You can literally sign up for both in just seconds and let the savings start stacking up.
  • Sell stuff on eBay or Amazon. If you have a good eye for a bargain, you can buy items at thrift stores or garage sales and sell them for a profit on eBayAmazonCraigslist, or your local online classifieds.
  • Sell your clothes to consignment shops. If you’re like most people, you probably have more clothes than you need. So use them to bring in some quick cash!
  • Have a garage sale. Declutter and earn money, all at the same time!

Learn more here about the many ways that you can increase your income.

 

6. Create and commit to follow a budget or spending plan.

To help you start saving money, you need to follow a budget. I know you might cringe when you hear the word, either because of past difficulties with budgeting or because of negative feelings you might associate with the word that have kept you from budgeting in the past. But a budget, or spending plan, is just a list of monthly goals for your money. It is where you decide what you want to spend for each area of your finances.

As you create your first budget and then work to tweak it, don’t shoot for perfection and don’t be too hard on yourself. It will take a few months for you to get most of the kinks worked out and for you to start really budgeting effectively. But after about three or four months, when you do get the hang of it, chances are that you will feel like you got a raise, even before you start adjusting your budget in order to spend less and save more. Find steps for creating your first budget here.

 

Check out these related articles:

 

 

When you are new to budgeting, you will probably want to estimate a little high for the different budget categories at the beginning, just to give yourself some wiggle room. We’ll talking briefly about ways to find more money in your budget in the next few sections of this article.

Check out these related articles:

 

7. Work to get out of debt to help you be able to start saving money.

It’s also important for your financial well-being that you get out of debt. Having a big pile of debt is awful. It’s scary. It causes gut-wrenching fear and sleepless night. Having so much debt that you don’t know how or if you can pay it off is a horrible place to be. I’ve been there. But I got out—my husband and I completely changed our financial situation and our financial future. And so can you! If a ton of debt is where you are today, it is definitely not where you have to be down the road. You can get yourself out of the mess you’ve created—and I want to help you do it.

When you pay off your debt, as Dave Ramsey says, you free up your most powerful wealth-building tool: your income. When you don’t have to pay all of your money to everybody else, you can use it to accomplish some really amazing things!

You can use it to purchase a car with cash, save for retirement, save for your children’s college, go on guilt-free vacations and travel, give generously to causes you really care about, and become rich (really—the old-fashioned way!) and achieve financial freedom.

No matter how much debt you have, whether a little or a lot, get rid of it, and free yourself from captivity. Read this article to learn a simple, step-by-step process for how to get (and stay!) out of debt.

 

 

8. Automate your savings plan.

One of the best things you can do to help ensure that you consistently work toward and reach your financial goals is to automate your finances in such a way that it helps you succeed. One of my all-time favorite financial books is The Automatic Millionaire, by David Bach. If you want to win at money, you need to take willpower out of the equation as much as possible and replace it with a system that won’t allow you to fail.

So, let’s say, for example, that for now you have four main savings goals that you want to work on: you want to pay off your credit card debt, build up a three-month emergency fund, start saving for retirement, and start saving to purchase a five-year-old car in a couple of years. This is how you could go about doing that:

Set up direct deposit. First, set up direct deposit with your employer if you possibly can and if you don’t already have it set up (for convenience, but more important, so that you won’t spend money right from your paycheck that would have been better off going to something else more important).

Then, set up an automatic transfer from your main checking account into a separate savings account that will be used for your emergency fund. Transfer as much money as you can each paycheck into this EF savings account until you have at least $1,000 but up to one months’ worth of expenses in this account.

A great way to do this, if your bank doesn’t offer the option of having multiple savings accounts linked to your checking account, is to open a savings account (and then more savings accounts, as you are ready to use them) with an online bank like Capital One 360. We currently have over 10 different savings accounts for our various savings goals, and I love knowing that I won’t accidentally spend the savings for one item or category on something else.

In order to build up your initial emergency fund as quickly as possible, see if you can sell anything around the house or in the garage that you don’t need. And look into ways to earn extra income.

Then after you have a small initial emergency fund in place, work toward paying off all of your credit card debt, and get that paid off as quickly as you can, as well. If you haven’t gotten a second job or side hustle before this time, consider getting one now so you can get out of debt sooner. To begin paying off your debt, automatically transfer the money that was going into your emergency fund (once you have at least $1,000 in that account) toward paying off your debts. There are a couple of ways you can do this: attack your highest-interest debts first (avalanche method) or your smallest debts first (snowball method). You can do whichever will help you to best stay motivated, but my recommendation would be to attack your debts smallest to largest because of the quick wins that you get and the extra motivation that gives to stay focused and keep working on getting out of debt. As you work to pay off all of your debts, reexamine your spending, and see if there are places where you can cut your spending in order to get out of debt sooner. Here are more than 20 ideas of how you can reduce your spending in various areas.

Then once you have paid off all of your debts, start transferring more money into your emergency fund, until it has at least three to six months’ worth of expenses in it. To save more money toward your emergency fund, transfer all of the money that you were using to pay off your debt to fully fund your emergency fund. Try to do this a quickly as you can—in three to six months. Consider taking on a side hustle or doing overtime, or find other ways of earning extra income, if you haven’t yet. And then you can begin investing for retirement, saving toward your children’s college, and saving (to pay cash!) for large purchases such as a newer vehicle, awesome family vacation, new furniture, and more.

Once you have a fully funded emergency fund, start saving money in your 401(k) at work (or Roth IRA or other retirement account available to you), or increase your contributions, to at least 10 percent (and up to 15 percent) of your income. Here, again, set up automatic electronic transfers so that the money will leave your paycheck before it has the chance to get spent. Once you have invested enough to receive the full match from your employer in your Roth or traditional 401(k), invest the rest of the money allotted for retirement savings, until you reach 10 or 15 percent of your income, in a Roth IRA (because you likely have a lot more options available to you through a brokerage firm that offers Roth IRAs than you do through your company retirement plan—which means your potential for higher rate of return is likely better). For more information on investing for retirement, read this article.

Finally, at the same time as you are working to increase your retirement account contributions (or sooner, if you can fit it into your budget), start saving for larger purchases and expenses. Begin automatically transferring money each month into a savings account for that used car that you want to buy in a few years to replace the one that you are currently driving. If you can save $200 a month toward the car that you want to purchase in two years, then you would have about $5,000 to go toward that newer car, plus the amount that you can sell your current car for at that time—let’s say that that was also $5,000. So that would give you $10,000 to buy the five-year-old car with—for cash! So you would transfer automatically each month that $200 into a savings account, and allow the money to grow for the next couple of years.

And that is how you automate saving, paying off debt, and investing in order to gain financial stability and build wealth.

For more information on automating your finances, read this article.

 

9. Shift your mind-set to think long-term.

If you only ever think about the short-term—what you want to do with your money today or this week or this weekend or this month or even this year—you will always be broke.

In order to build wealth so that you can live your financial dreams, you’ve got to think long term. If you don’t always want to have a car payment and if you ever want to pay off your mortgage, you’ve got to think long-term. If you want to get out of credit card debt—for good!—you’ve got to think long-term.

If you want to actually plan how to start saving money toward your children’s college educations instead of just thinking that you know you should, you’ve got to think long-term. If you want to have a nice (or even amazing—it really is possible and probably isn’t nearly as hard as you think) retirement, you’ve got to think long-term.

That probably means giving up some things that you may want now for things that are even more important for a bright financial future. One of my favorite quotes could be applied to personal finance: “Don’t give up the things you want most for the things you want now.” In other words, don’t let eating out, buying a new fancy car, purchasing a too-expensive home, buying too many gadgets, and so on rob you of a secure and awesome future. It’s just not worth it!

 

Conclusion

Figuring out how to start saving money isn’t always easy. I know that it’s difficult to reverse habits and to make lasting change. It’s a lot easier (at least, in the short term) to buy that new pair of boots or another handbag or a motorcycle than it is to say no. It’s easier to take the kids to Wendy’s for dinner or order pizza than it is to stick to your meal plan. But saving for your worthwhile financial goals is an essential part of your overall financial success because it allows you to get and stay out of debt and build wealth.

I know it is hard, but you can do it! And I will help. 🙂

 

What are your best tips for how to start saving money? Which of the tips listed above do you think will be most helpful to you to help you start saving money? Leave a comment below and let me know your thoughts!

Invitation to Share

Was there something in this article that inspired you to change something about your money? Are there ideas or tips that you feel could help others? Would you please take a minute to share this article via email or social media? I would love your help to share these principles of financial well-being. Thank you!

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Starter Emergency Fund: What Is a Starter Emergency Fund, and How Much Should You Put in It?

starter emergency fund

Starter Emergency Fund

In this article I am going to explain the meaning of a starter emergency fund. I will also share how much I recommend you save in your starter emergency fund, and I will give ideas for how you can fund your starter emergency fund.

By creating a starter emergency fund,  you will be helping your family to stand on wonderfully firm financial footing! 

What Is a Starter Emergency Fund?

A starter emergency fund, or a baby emergency fund, is savings that you put in a separate savings account and that you don’t use for anything else besides a true emergency.

Of course people define emergency differently, but I consider an emergency something that is essential for you to get by. So if your car breaks and you have to have your car to get to work, that is an emergency. However, if you have a car and it breaks but your spouse also has a car and you can get to work for a few months by riding your bike and in the meantime save up the money to fix the car, then that is not an emergency.

The difference between a starter emergency fund and a full emergency fund is that you build up a starter emergency fund very quickly, and you save less money in your starter emergency fund than in your full emergency fund. Read the next section to learn how much I recommend you save in your starter emergency fund.

Learn how to build a fully funded emergency fund here.

 

     

    How Much Should You Have in a Starter Emergency Fund?

    I recommend that you save somewhere between $1,000 and one month’s worth of expenses in your starter emergency fund. Note that I mention one month’s worth of expenses—not one month’s worth of income. If your expenses currently exceed your income, then work on reversing that trend. 🙂 But the starter emergency fund should be based on your monthly expenses, not your monthly income, and should cover up to one month’s worth of expenses. But if you feel comfortable with a $1,000 starter emergency fund, then go with that amount because you can save that up more quickly and because $1,000 will cover most financial setbacks you will have.

    Find awesome ideas for how to fund your starter emergency fund in the next section!

    How Can You Build Your Starter Emergency Fund?

     There are two main ways you can build your starter emergency fund, and I recommend that you use both of them. 🙂

    The first is to work to reduce your expenses. Cancel your cable or satellite service, cancel subscriptions and memberships, save money eating out and slash your grocery spending, do a spending freeze for a period of time, and make other cuts where you can. Treat funding your starter emergency fund like an emergency! (That way, when you have a financial setback or emergency, you’ll have accomplished this goal quickly so that you’ll be prepared.) For more information on how to reduce your spending, see this article.

    The other way to quickly build your starter emergency fund is to make extra money. You could do overtime at work or get a second part-time job, or take on extra clients or work if you own your own business. You could start a side hustle. You could rent out rooms in your home on Airbnb, or you could get a side gig driving for Lyft or Uber. You could sell stuff around your house that you don’t need.

    For more ideas, check out this article on increasing your income.

    Conclusion

    If you don’t have a starter emergency fund, treat getting one like an emergency! 🙂 Try to have your starter emergency fund funded in a month or less if you can by making extra money and reducing your spending. And then after you have your starter emergency fund and have paid off your nonmortgage debt, work to build your fully funded emergency fund of three to six months’ worth of expenses.

     

    How much do you feel is a good amount for your starter emergency fund? What ideas do you have for funding your starter emergency fund? Leave a comment below and let me know—I would love to hear your ideas!

     

    Invitation to Share

    Was there something in this article that inspired you to change something about your money? Are there ideas or tips that you feel could help a family member or friend or people in general? Would you please take a minute to share this article via email or social media? I would love your help to share these principles of financial well-being with others. Thank you!

    Join Our Facebook Group!

    Join our closed Families for Financial Freedom Facebook group to get support and share ideas for how we can all improve our financial well-being by earning more, spending less, saving more, and investing more and reach our financial goals. You can do this! And we are here to help.

    13 Amazing Ways to Spend Your Tax Refund

    what to do with tax refund

    What to Do with a Tax Refund

    In this article I am going to discuss my best suggestions for what to do with a tax refund. Learn 13 awesome tips for what to do with a tax refund to use it to your best advantage! With these 13 fun tips, you can get great ideas for what to do with a tax refund this year!

    13 Best Ideas for What to Do with a Tax Refund

    If you are looking for what to do with your tax refund, then this article is for you! Here are 13 of the best things you can do with your tax refund.

    But before we get to the suggestions for what to do with a tax refund, I do want to make this recommendation: If you regularly get a tax refund of more than $600, then you should change your tax withholding so that you are not giving an interest-free loan to the government! 🙂 I know that most people just see their tax refund as found money, but that is money that you have given to the government to use throughout the year, and you didn’t get any benefit from them using your money!

    According to Bankrate, the average tax return for 2018 was $2,899. That means that the average American family allowed the government to use $241.67 a month that they could have kept in their own pocket and used to fund their own awesome financial goals! So let’s not do that!

    Again, if you regularly get a large tax refund, don’t just see it as a windfall and blow that money! Adjust your W-2 tax withholding, and then use the money that it saved you each month to reach your own amazing financial goals!

    But for this year, here are 13 ideas for what to do with that wonderful tax refund.

    1. Build a starter emergency fund.

    One of the best things that you can do with a tax refund is to create an emergency fund. If you do not already have a starter emergency fund of at least $1,000 or up to one month’s worth of expenses, then start there. Put your tax refund money in a separate savings account (I like Capital One 360 because it is so easy to set up multiple savings accounts for your various savings goals, and they have been a great bank for us) earmarked for emergencies only, and then don’t touch it unless you have an emergency! Learn what an emergency fund should be used for here.

     

    2. Pay down credit card and other nonmortgage debt.

    Another great tip for what to do with a tax refund is to use it to pay off debt.

    If your nonmortgage debt is less than the amount of your tax refund, awesome! Pay it all off, and free yourself from that burden! If you do not have enough in your tax refund and other money available to pay off all of your nonmortgage debt at once, then pay off the debt with the highest interest rates first, or else begin and follow a debt snowball plan to wipe out all of your debt as quickly as possible!

     

    3. Finish off funding your emergency savings.

    If you have enough money with your tax refund money and maybe even other savings you have available to do so, then fully fund an emergency fund with at least three months’ worth of savings or, ideally if you can, six months’ worth of savings. Or save as much as you can toward that goal using your tax refund.

    And then save additional money each month (the money you were overpaying the government that gave you this awesome windfall in the first place? :)) to finish funding your emergency savings account until it is fully funded with, if possible, six months’ worth of expenses (but at the very least three months’ worth of expenses).

     

    4. Invest the money for (an amazing!) retirement.

    Another great option for what to do with a tax refund is to put the money toward your retirement savings.

    If you don’t have one set up already, you should open a Roth IRA and begin putting money in it each month to save toward your retirement. As of 2019, you can save up to $6,000 in your Roth IRA.

    So just for fun, let’s say you did that. If you are 32 years old, for example, and you got a big tax refund of $6,000 this year and put it all in your Roth IRA, And then let’s say that you worked till the (now recommended) age of 67.  And let’s also say that you invested the money in good, solid growth stock mutual funds and were able to earn the 30-year historical average of 12 percent on that investment. You would have $316,797! Pretty awesome, right? I would take $6,000 and turn it into $316,000 any day. 🙂

    If you don’t have a Roth IRA yet, sign up for the cheat sheet below to get simple instructions for how to open a Roth IRA in 10 minutes or less!

    5. Invest the money in an educational savings account for your children’s college educations.

    If you have children, one of the best things you can ever do for them is to help them have a debt-free college education. (It is possible, and even very doable—I promise! Learn how to save for your children’s college educations.) Don’t let them saddle themselves with thousands of dollars of student loan debt; just don’t! You likely had student loan debt yourself, and I bet you hated it! I bet you couldn’t wait to get rid of it! So save your children from having to go through that experience by helping to ensure that they pay for their college education with cash.

    They will thank you profusely for helping to set them up for financial success in life by not having to start out their adult life shackled by student loan debt—I promise.

    6. Use the money for a large purchase that you need to make (with cash!).

    If your washer and dryer need to be replaced, now might be a good time. If your car is on its last leg, buy a new (to you! not brand new!) car with cash. If you have been wanting to buy a nice piano for your children to put all of those many hours of practice to use on, by all means go for it.

    7. Use your tax return to pay for home improvements.

    If you are nonmortgage debt free or if you have home improvements that really need to be made before they become an emergency, then using your tax refund on home-improvement projects is a great idea!

    We don’t normally get much of a tax refund (because, again, we don’t like giving the government an interest-free loan for the year when we have so many financial goals of our own!), but we are getting a tax return this year, and because we are debt free (including the mortgage!) and already saving for our kids’ college educations, we are going to use the money for some much-needed home improvements.

    A speedy driver was kind enough to rearrange the fence on the east side of our home for us, and now we are going to get it replaced and finally pour the approach for the side driveway and do a few other things like that. I’m excited!

     

    8. Use the money to pay down your mortgage!

    If you have an adequate emergency fund (of three to six months’ worth of expenses), you are out of all nonmortgage debt, and you are saving the recommended 10 to 15 percent (ideally 15 percent) of your income each month toward retirement, then you are a financial rock star! Congratulations to you!

    In that case, a great way to spend your tax refund is to use the money toward paying off your mortgage. My firm belief is that one of the best things that you can do for your own family’s financial well-being, financial security, and ultimate financial freedom is to pay off your mortgage as soon as you can. Once you have paid off your mortgage, no one can take your home from you if you have a financial setback such as a death of a spouse, a major illness, or the loss of a job.

    And once you pay off your mortgage, you can invest the money in your own wealth instead of the bank’s! If you will pay off your mortgage as quickly as you can and then pay yourself a mortgage payment every month (as we have started doing since we paid off our mortgage a couple of years ago! #debtfreeforlife), you can then invest that money in good growth stock mutual funds in order to buy a more expensive house with cash in five or more years (which is our plan) or for your long-term financial security and wealth.

     9. Put your tax refund money toward a larger down payment to purchase your future home.

    Another great option for what to do with a tax refund is to put the money toward your down payment for the future house purchase you are saving money toward. By saving up a larger down payment, your monthly mortgage payment can be smaller. (I know it is extreme, but you might even consider the 100% down plan! That’s our plan for our next home purchase! #100percent down :))

     

    10. Start savings accounts for larger purchases and expenses (sinking funds).

    Another great idea for how to use your tax refund is to open individual savings accounts (these are all savings accounts that we have and regularly fund and use) for large purchases and expenses such as car maintenance and repairs, future (cash!) car purchases, home maintenance and repairs, annual life insurance premiums, family vacations, Christmas, birthdays and other gift giving, appliance and furniture purchases and repairs, and miscellaneous short-term savings.

    These types of funds are often referred to as sinking funds, and they are a fantastic part of your overall financial success plan so that you can avoid going into debt in these and other areas.

    Read this article for more information on saving up for large purchases and expenses and this article to learn more about sinking funds.

     

    11. Use the money to continue your education.

    If you are in a position where you would benefit from additional education to further your career (or just to further your own interests), then consider taking some college classes or completing a certification or other job training program.

    One of the best investments you will ever make is in your own education if it helps you to be able to increase your income. And even if you take classes just for fun, additional knowledge is always a worthwhile thing.

     

    12. Start a side hustle or small business.

    If you have been wanting to start a side hustle (learn how!) or small business on the side, this could be the perfect opportunity to do it!

    I would not recommend that you go into debt to start a side hustle or small business, but if you can do it for cash and have done the research to show it is a good fit and a viable (profitable) option for you, then go for it! Discover 19 awesome side hustles that you can do from home (or anywhere)!

    Perhaps you haven’t considered starting a side hustle and should! If your day job lends itself to freelance or consulting work, for example, then starting a business on the side could be a great way to further use your skills, expand your professional network, and earn extra income to reach your financial goals—like paying off debt or purchasing a home—more quickly.

     

    13. Go have some (debt-free, guilt-free) fun!

    Whether or not you follow any of the suggestions above for what to do with your tax refund, if you use some or all of the money from your tax refund for some debt-free fun, you will still be ahead of the game!

    You could use the money to buy a new TV, a new smartphone, or a nicer (paid-for, please!) car, or you could even go on an epic trip, like my coworker is (he and his wife are going to China!). You could purchase bikes for your whole family (can you say “tandem”? :)). You could pay for an awesome backpacking trip or go to Disney World or take a family cruise.

    If you love to save money when you travel like we do, read this article with 5 awesome ways that we save money by using Airbnb! And if you haven’t tried Airbnb yet, you need to! Sign up here to receive $40 off your first Airbnb rental!

     

    Conclusion

    There are many great options for what to do with a tax refund, but these 13 suggestions are some of the best ways to spend your tax refund to get the most bang for your buck!

    As I mentioned earlier, if you regularly receive a tax refund of more than $600, adjust your tax withholding on your W-2 so that you are instead bringing that money home each month! Then use the money to move you toward financial freedom! Use the money to fund your own amazing financial goals like building a six-month emergency fund, saving more money for retirement, paying off your mortgage early, funding your children’s college educations, or even taking an epic, paid-for family trip!

     

    Related articles:

    12 Best Tips to Save Money on Entertainment
    109 Easy Ways to Save Money: Your Ultimate Guide to Saving Money!

    5 Awesome Ways We Save Money Traveling with Airbnb!

    5 Best Frugal Living Hacks to Save $500 a Month or More!

     

    What are you going to do with your tax refund this year? Are you going to pay down debt, invest, build your emergency fund, save for a large purchase, or spend the money on something fun? Leave a comment below and let me know—I would love to hear your ideas!

     

    Invitation to Share

    Was there something in this article that inspired you to change something about your money? Are there ideas or tips that you feel could help a family member or friend or people in general? Would you please take a minute to share this article via email or social media? I would love your help to share these principles of financial well-being with others. Thank you!

    Join Our Facebook Group!

    Join our closed Families for Financial Freedom Facebook group to get support and share ideas for how we can all improve our financial well-being by earning more, spending less, saving more, and investing more and reach our financial goals. You can do this! And we are here to help.