3 Tips to Calculate the Right Amount of Savings for Your Budget
While the main reason to create a budget is to save, budgeting is also great to define your income and expenses. By attaining a realistic idea of how much you can save each month, you’ll be able to reach your long term goals sustainably – such as saving up for that deposit on a house or the car you’ve always dreamt of.
That’s why today, the financial experts at Jolly Good Loans are offering their top tips so that you can calculate the right amount of savings for your budget. From breaking down what you spend day-to-day to setting a savings goal which is manageable and attainable, you’ll be on your way to reaping the rewards of an improved financial situation.
Break down what you’re spending
To create a manageable budget, you need to know exactly what you’re spending. So, keep track of every expense from that morning coffee to your costs to travel to work. Once you have this information, a helpful tip to see where you’re overspending is to organise it into bills, mortgage, groceries and extras – you can define these categories as you see fit.
Apps are a great way to analyze your savings, without taking time out of your day – so, gain more control over your finances by downloading budgeting tools such as Plum. However, if you’d prefer to do so yourself, use your credit card or bank statements, which will also help you to see how the pennies add up.
You can then begin organising your expenses into a workable budget. Your budget should primarily outline how your expenses measure up to your income so that you can plan exactly where you’ll be spending and see where you’re overspending, therefore determining where you can make some small changes to contribute to your savings.
A helpful tip which will pay off is to factor in expenses that occur regularly, but not every month, such as car maintenance or a household appliance which may require a replacement soon. This way, you won’t be caught unprepared in the event of a problem which may have forced you to dip into savings.
Set the goal
The ultimate way to stay motivated to keep your savings in the pot is by determining what you want to save for. Whether it’s getting married, a holiday or even a deposit on a home, you’ll need to know exactly how much money you’re going to need – and from there, you’ll be able to determine how long it will take to save it.
So, now that you’ve made a budget, you’ll need to create a savings category within it. We recommend around 10-15% of your income, so that you can save on a steady rate sustainably. If you can’t save that much, it’s time to cut back. So, a helpful tip is to cut back on every category a little bit, even if it’s only £5.00 per week. With your end goal in mind, it’ll be easier to decide on your priorities and, therefore, how you allocate your savings.
Monitor your habits
Not only is monitoring your budget a great motivator as you watch your savings build-up, but it’s also an effective way of knowing what changes you’ll need to make to meet your goal. You could open a savings account, or use your bank statement to see the changes that you’ve made paying off.
Review your budget and check your progress every month to ensure that you’re sticking to the plan and that any issues which may get in the way of the end goal are fixed as soon as possible. By making saving an everyday habit, you could even be inspired to create another savings goal to meet after you’ve achieved your first one.
On the other hand, if you’re pushing a little too hard, it may be time to revise how much you’re saving each month. For example, if it’s meaning that you’re struggling to afford your substantial weekly shop, then it may be time to take another look at the breakdown. A great tip is to start small and increase your savings gradually, so that saving is more likely to come naturally. After all, it’s better to have a savings plan that you can stick to so that you can avoid giving up mid-way through.
It takes willpower and careful planning to calculate the right amount of savings for your budget. So, we hope that with our guide, you’ll be equipped with the know-how to save sustainably so that you can reap the rewards of being able to afford that all-important event or new purchase.
Keith Harrison is a content creator and writer for Jolly Good Loans – your online personal loans encyclopaedia.