I have been getting a lot of positive response with this “class”. I’m glad a lot of you are finding it helpful. I would love to hear your feedback on what’s been working for you or even new tips of what you do! For now we will continue with how I figured out what I could afford to set aside and the best plan for me in my current situation.
I started off (with my dad) by estimating how much I tend to spend in a month. We included rent, bills, taxes, transportation, groceries, and miscellaneous extra spending. From here we were able to decide how much I needed to set aside for bills, what percent of my paychecks can go into my long term savings, and how much will be left for spending.
I should probably mention that I have set up my bank account to have 1 savings account and 2 checking accounts. I use the savings account for long term saving (my first saving account with the goal of $1,000). One checking account I put money aside for all my bills while the other is for any purchases I make throughout the month.
Here is a hypothetical example of my process…
1) Break down where money is spent.
$700 – Rent
$100 – House Bills (gas, electric, cable, heat, internet)
$100 – Cell Phone Bill
$100 – Transportation
$100 – Groceries
This totals to $1,100 per month.
2) Figure out the estimated amount you should make each pay check.
$20/hr x 35hr/week = $700/week
This means that monthly, at this pay rate, the total amount made would be $2,800 before taxes.
3) Do the math to decide what percentage you can afford to put into savings.
First you will want to take out your taxes. We will use my 25% NY taxes as an example…
$2,800(.25) = $700
$700 will go towards your taxes which leaves you with $2,100.
I suggest starting off with saving 10% of your paycheck (after taxes) to go into savings. It’s a reasonable amount that does not cause you to spare too much money. I read once,
“If you can’t save 10 cents from a dollar, you’ll never save $100 from $1,000.”
I made saving 10% from every dollar I make a resolution for me this year. Eventually I would like to work up to saving 30% of my paycheck. But I will not move towards that goal until I feel I am financially stable to do so.
The math for this 10% savings would be…
$2,100(.10) = $210
This leaves you with $1,890.
*Remember we are still working with monthly here, you can also do this weekly if it makes more sense to you.*
Next subtract your monthly expenses from this total. From here you will know how much will be left for spending money.
$1,890 – $1,100 = $790
$790 will be left over. This breaks down to about $197.50/week.
Going from $2,800 to $197.50 a week does sound disappointing, but don’t be. This $197.50 is extra money for fun. You already set aside money for everything you’re responsible for. In reality this is a really nice set up for having extra spending money each week. At least for me, I know $197.50 is a lot more than I need to survive on. Plus, once you have yourself set up with $1,000 in your savings and have money set aside for bills you will realizes that you won’t be playing “catch up” as much. This means your $197.50 will grow over time!
I hope you find this model useful. Hopefully you can use this model to just plug in your numbers to follow my process. I really encourage you to take a chance to try this method. You might be surprised how much you can save over time. I already have the money for my bills at least 2 weeks in advance. For someone who is used to living from pay check to pay check I’m really impressed with the outcome of this method.
Believe it or not, we have one more step to talk about. Next time I will talk about have to stay ahead. How to get where I am having my money for bills set aside before the end of the month.