How to save with a purpose?

It is no wonder why, according to an article published in late 2021 on Bankrate.com, two-thirds of Americans do not expect to see improvements in their finances this upcoming year. Economic hardships faced by countless families in the US as Covid 19 repercussions resounding across the country continue to climb. Many families are faced with the rising cost of living due to inflation, job insecurity, and mounting medical bills. Undoubtedly we understand that for many living paycheck to paycheck there is just not enough to save. We continue to invest in those communities with the most vulnerable populations. 

We hope with practice, many of us who are privileged and capable of putting away a bit more towards investing. Not to mention, use the strategies provided here to get our savings in order. This three-step process will help guide you to save the maximum amount of money with a purpose. With this strategy, you will successfully map out a plan to save for all your short-term and long-term goals. 

Step 1: Create a personal income statement

A personal income statement shows the money earned and spent over a set period of usually a month. By adjusting for expenses, this statement will give you an estimate of how much you will save. Expenses can be defined as anything that takes money out of your bank account including bills, subscriptions, and medical fees. While income can be defined as all of the money you put in your bank account in a month. A paycheck, dividends from stocks, interest from a bank , and bonuses from work or holidays are income sources.

To reiterate, your budget sheet includes your monthly income and your monthly expenses. Whether you use our free budget sheet or your own there are a few staple items you will consistently find. 

Firstly, add up all of your consistent monthly income under the income section of the budget sheet. If you are a two-person household, include your partner’s income as well. Remember income does not have to be exclusive to your weekly paycheck, it can include monetary gifts, bonuses, side jobs, and passive income. You can then start listing your expenses, taking into account rent, utilities, child care, subscriptions, etc. 

To find your monthly net income take the total income and subtract the total expenses. Reference the example below as an exemplar. According to the table below this budgeter earned a total income of $4000, but paid $2100 in expenses. This left the budgeter with a month net income of $1900.

Step 2: Create a weekly or monthly savings tracker

Understanding your monthly net income, which is calculating your income minus expenses, is the first step to saving money. Once you have an idea about what you can save monthly you can set attainable short-term and long goals using that data. The authors at Financial Fitness Warrior suggest using a monthly savings tracker where a budgeter would record their short-term projections for each month along with what they were able to save by the last day of the month. In effect, using these short-term goals will allow for long-term projections. 

Take a look at the example below from a monthly savings tracker. Across the top of the spreadsheet along the horizontal axis, you can see the budgeter labeled each category from left to right as “Month, Goal, Actual, Difference, and Comments.” The budgeter intends to use this tracker for the year, thus labeling January through December on the vertical axis. For each month the budgeter intends to save a consistent amount of $1900, however as you can see there are a few months they can save more than the intended goal. The benefit of the comment column is that the budgeter can write notes for future reference explaining why a goal was not met or exceeded. 

Step 3: Set attainable short-term and long-term goals

It is imperative to keep George T. Doran’s acronym for successful goal setting in mind. In 1981, Doran introduced the idea of setting S.M.A.R.T goals, and twenty-one years later this strategy continues to help many remember what goal setting is all about. According to projectsmart.co a SMART goal includes all of the following criteria:

• Specific: target a specific area for improvement.
• Measurable: quantify, or at least suggest, an indicator of progress.
• Assignable: specify who will do it.
• Realistic: State what results can realistically be achieved given available resources.
• Time-related: specify when the result can be achieved.

Once you have created a monthly savings tracker you are finally ready to set short-term and long-term goals. The short term can be as little as a day to a few months whereas the long term will focus on one or more years. Let us see an example of a successful short-term financial goal using the SMART method. 

“By June 30, 2022, I will save $7500 by moving $1500 per month into my savings account.”

Using our criteria for success we can see this goal is specific: it contains the exact amount the person wants to save. It is measurable because it includes a number that can be verified. The budgeter assigns responsibility to themselves as the person responsible for accomplishing the goal. Additionally, they set a realistic goal of $1500 which is four hundred less than the monthly tracker projection, to allow for flexibility throughout the year. Lastly, the goal had a time-related end date.

In conclusion

With more financial strain than ever before, more families are looking for ways to save for the future. By following our three step suggestions budgeters will feel confident in taking the first steps towards taking control of their personal finances. To begin, start analyzing your monthly income and expenses using our free budget sheet template. Once you have a grasp on potential savings begin tracking your monthly savings making sure to document months you met, exceeded, or did not meet your projection. Lastly, use your monthly savings projections to set SMART goals for the short and long term.