The Savings First Budget
Budgets don't have to be all bad, especially when set up to pay yourself first. Let's face it, you are the one putting in the time to make that paper, so why not pay yourself first? The bills can wait (at least for a moment or two).
Sound good to you? If so, the Savings-First budget is something to consider. This budget approach is more than just numbers on a screen, it's a lifestyle. Prioritizing your savings can be tough and require sacrifices in the short term - date night may have to wait. But your future self (and family unit) will thank you.
Getting Started
First things first, take a hard look at your current financial situation. How much money are you making, and how is it being spent? If needed, are there areas you can cut back on? It's easy to cut back on eating out, but not so much when it comes to downsizing your mortgage. Break your monthly expenses into two categories: needs and wants. Needs are items such as: mortgage or rent, groceries, and electricity. Wants are more easily trimmed, such as all of those subscription streaming services - cut the cord and limit to 1-2 per month. Be honest with yourself when looking at your spending habits. Remember, the point of this budget is to prioritize your savings. Everything else is secondary.
Let's say your household earns $6,000 per month. You want to save 10% of your income towards retirement and 10% towards that mortgage down payment. Each month you would set aside $1,200 towards savings, leaving $4,800 for everything else. That was a basic example, but you get the point.
How much to save?
Now that you have a handle on your income and spending habits, it's time to figure out how much to save. This depends on your short and long-term goals are. Be realistic about your financial situation and focus on the long term - lifestyle changes shouldn't be short-winded. If you are in a relationship, make sure your partner is on board so that you can support and encourage each other. Single, or don't trust your partner with anything money-related (a separate issue for another day)? Find a buddy - having a support system will make sticking to your budget easier but more fun.
Whether you are saving for a vacation, putting cash towards your 401k, or pursuing your FIRE dream, set a financial goal that aligns with your passions. Not sure where to start? Consider setting aside money for an emergency fund, paying down any high-interest debt, and saving for college or retirement. Make sure to save up for family adventures too - those memories are priceless. Balance is key - don't go crazy saving for annual trips to Disney. Talking about Disney, lets say you're wanting to take a family trip in about two years. After doing some quick research, you estimate it will cost you roughly $4,800 for the trip. Over the next two years, you'll need to put away $200 monthly to fund your family's adventure. My wife and I may be a bit weird, but part of the fun is saving up for a trip. We wouldn't mind making small sacrifices knowing it served a larger purpose. Knowing we "earned" the trip made it much more worth it when booking our travel.
Once you set your savings goals, leftover money will need to be used for your day-to-day needs and wants (yes, you still need to pay your rent). This part can be tough - cutting back is never easy. My wife and I would make visual inspiration boards to keep us on track and remind us why we were sacrificing in the short term. A colleague of mine would keep a whiteboard in their family room and update the amount saved and needed weekly. There are many techniques to explore.
This is a process - it's okay if you can't do everything you want right away. For the vast majority of us, financial resources are limited, take it one day at a time. If you have any time to spare (easier said than done as a parent), consider a side hustle to make some extra cash to accomplish your savings goals faster. Some of the best ways to create generational wealth are passive income streams.
Get saving!
The savings-first budget is one of my favorites - it prioritizes the big picture. Don't waste your time or brain capacity on menial tasks - automate everything. From contributing to your 401k to paying bills online, keep it simple. Focus on your vision and building the life you and your family deserve.
Keep reading about budgets with our Parent’s Guide to Budgeting, or start budgeting today with our Budget Planner.
