If you are like me then you are hoping at the end of the month you have a little extra cash to stick in your savings account. If you’re not on an extremely tight budget you may find yourself asking “why the heck did I only save $150 this month”?? Yes, it is rather upsetting to know you blew an additional $500 somewhere along the lines and can’t remember where. Below is an outline for a monthly money saving strategy my wife and I have been using for nearly 10 years and it has worked wonders for us.
Introducing the “Over $5000” Strategy
My wife and I have been using this strategy for nearly 10 years and it is quite simple.
Step 1: Determine your rough monthly expenses
To start, determine your monthly expenses and then add a “slush fund” amount to that. We’ll assume my monthly expenses are $4000 and I want an extra $1000 available for the unexpected. This means I would carry a balance of at most $5000 in my checkbook.
Step 2: Transfer Every Pay Period
Every time you get paid you will transfer the amount over $5000 into your savings account.
Step 3: Pay Yourself via an Automatic Investment plan
Setup one or two automatic savings plans to deduct a fixed dollar amount from your checking account.
Why It Works
This method works because it forces you into a loose budget. When you check your account balance and it’s down to $500 you know you can’t spend too much money until you get paid again (even though you know you just transferred some money into savings). It is the psychological affect of having a low balance coupled with “when is my next paycheck” that makes it work and keeps you within your bills and miscellaneous spending budget.