Does Budgeting Actually Save You Money?

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If your priority is to save money, you might be conflicted as to how you do that. Especially if you’re living paycheck-to-paycheck and feel like you do not have any extra money to throw at savings.

Budgeting is one of the best ways to save money over time. By creating and maintaining a budget, you are assigning every dollar of your income to a budget category, which can and should include your savings.

When creating a budget, you are gaining a big picture idea of what your finances look for the following month. This allows you to plug money where you need it first (living expenses) to see how much you could apply toward savings. At that point, you could either apply any excess money toward savings or allocate a certain percentage toward savings in order to fund other budget categories.

Creating a budget can be intimidating to a first-timer! Is it something you do once and just follow it every paycheck? Or do you have to open your budget and work on it every month?

Budgeting is easier than it sounds. And the beauty of creating a budget is that it puts you in control over where your money is going each month. That’s incredibly important when you are looking to save money.

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How do I create a budget to save money?

As I mentioned, budgeting is easier than you may think. It can even be, dare I say fun! So how do you create a budget aimed at saving money?

In order to create a budget with the focus of saving money, it’s important to cover your monthly expenses first. Once your monthly expenses are covered, then allocate a fixed dollar amount or percentage of your paycheck toward savings. This ensures that you are covering any bills that come out and do not end up overspending.

Your monthly expenses should not only include bills like mortgage/rent, utilities, and subscriptions. You should also take into account what you have to allocate toward food, gas, and any other essential expenses that should take priority over putting money away toward savings.

When you sit down to create a monthly budget, you need to come to the table with an idea of how much you would like to save each month.

Perhaps you are dumping money into a savings account for an emergency, saving toward retirement, or a goal like a vacation or big purchase. Whatever your goal is, you will want to have an idea of your end goal so you know how much you would like to apply toward savings.

If you’re looking for budget binder to keep track of your monthly expenses and throw more at savings, here is a long list of great budget binders.

Once all of your monthly expenses are covered (including variable items like food and gas), you will have a better idea of how to adjust your savings goal each month.

How a monthly budget will help you achieve your money goals

There are many people out there that believe a monthly budget is unnecessary because they feel like they have a hold on their finances. The issue with this is that, even if income doesn’t fluctuate monthly, expenses can and very well may fluctuate.

A budget helps achieve money goals by allocating every dollar of your income instead of freely spending and adding the leftovers into your savings account.

When using a budget to manage your finances, you have a big picture idea of where your money is going before the month begins. This allows you to make adjustments (like allocating less in one category to enable you to allocate more to savings) before your money comes in and more importantly before that money is spent.

According to a survey done by Mint in 2020, only 35% of respondents knew how much they were actually spending each month. That means that 65% of those who responded had no idea how much they were spending.

Infographic showing that 35% of Americans actually know how much they spend every month
Percentage of Americans who know how much they spend each month (data collected by Mint in 2020)

I know there are many out there who choose not to budget or even open their bank account for fear of seeing where they are financially.

The issue with not using a budget and knowing where you stand financially is that there is little room for saving.

It is so easy to overspend and dip into your savings when you are not properly managing your finances (I know because that’s exactly what we did!). And the constant dipping into savings to compensate for overspending is what causes many to have depleted, or even empty, savings accounts.

One great way to know exactly how much you’re spending each month is to use something like a cash envelope wallet. You stuff cash into each envelope based on how much you allocate to those categories in your budget.

Once you go to make a purchase, you pull from your cash envelopes instead of using a debit card. This gives you an excellent idea of how much you’ve spent and how much you have left in each budget category!

This cash envelope wallet is one of my favorites.

When to budget to maximize savings

Equally important to actually creating a budget is when you create your budget. If you budget as you spend, it has little to no effect. When should you budget to allocate as much as possible to your savings?

In order to allocate as much as possible toward savings, it is important to create your budget before the month begins. By budgeting before the month starts, you are allocating your money before any of it is spent. It is important to do this because there is no room for frivolous spending and you can therefore maximize the amount of money that is applied toward your savings account.

When you sit down before the month begins and keep track of when every expense is scheduled to come out, you are able to find the most ideal times of the month to apply the most toward your savings.

What do I mean by that?

If you’re like most Americans, you get a biweekly paycheck. Since those paychecks come in every two weeks and not on a set date, the paychecks with which your bills are paid can vary.

That means that the amount you can pour into savings doesn’t look the same every paycheck. And if it does, you will have to lower other budget categories in order to compensate.

So, before each month begins, you should have the following information handy to create your budget:

  1. A list of all household expenses coming out that month and their scheduled dates to be paid
  2. The dates that you will be paid that month

Once you have that information, it becomes really simple to plug everything into your budget and add the most money possible into your savings.

What percentage of income to save

This can and should vary so much, depending on your family’s situation and needs.

As a general rule, experts agree that people should be saving around 20% of their income. One important note is that the 20% can go toward many different things: savings toward retirement, building an emergency fund, or even debt repayment (so not always toward a savings plan).

If 20% sounds too difficult to start with, experts agree that any savings are better than none. Working your way up to 20% may be the best and most efficient way to build your savings.

Pie chart showing the percentage of income saved by Americans in 2019, survey completed by Bankrate
Percentage of income saved in America. Data acquired by Bankrate

This data is slightly aged, but it shows the breakdown of how much money is being saved in America. While 20% is recommended, it certainly isn’t the reality.

What’s important is, no matter where you think you can start with saving, do not join the 21% of Americans who do not apply anything toward their savings.

Even if you can only save 5% at first while you are getting used to a budget, it’s worth the effort.

Below is a table of how much you could save based on making $4,000 take-home pay every month.

Percentage savedSavings per monthSavings per year
Amount possible to be saved with $4,000/month take-home pay by percentage

As long as you are able to save something, you are moving the needle and building your savings. The more you are able to save, the better off you will be.

how can I save money better?

If you’re in the midst of trying to pad your savings account and feel like you’re coming up short, it can be frustrating because you feel like you’re just not moving the needle.

In order to save money better, you will have to ensure you are making it a priority in your monthly budget. Instead of allocating what is leftover in your budget to savings, you will need to dedicate a minimum percentage you wish you allocate to savings every month and fit that into your budget.

This may mean that you have to take from other budget categories for the month, like reducing the amount you spend on going out to eat or picking up coffee on the go. If saving money is important, then it will have to take priority over budget categories that may not be as important.

Once your minimum percentage for saving is met, if there are leftover funds to allocate, you can decide if you should allocate more to savings or fund other budget categories.

As you saw in the graphic above highlighting how much Americans are saving every month, there isn’t a lot of priority given to savings in the average household.

The best way you can put money back toward savings is to make it a priority. Unfortunately, it sometimes means you have to cut back on other areas of your budget. That is when you have to decide which is more important to you.

If you’re looking to save even more money, it may be worthwhile to see how you can pull in extra money, even if it’s short-term.

Here are a few ideas on how to pull in extra money:

  • Sell your unused clothes
  • Find unused items around the house and have a yard sale
  • Find subscription services you can cut out
  • Be a dog-walker for Rover

For a comprehensive list of ways to pull in more money, check out this list on how to make money online here.