How to Budget & Save Monthly (+ why most people fail to save!)

hey guys today I am going to be sharing my current budgeting method that I've been doing for about a year now and it's kind of like a budget for non budgeters or some people might call it like the anti budget but the method that I use for budgeting every single month is the pay yourself first method so if you're trying to get your finances in order or you're just getting an interest in personal finance probably one of the first things you read that you need to do is make a budget ok budgets are super important and it typically means that you look at your income and then you do line by line with dollar amounts of how much you can spend in specific categories every single month until you are at zero and that is your budget you say 300 for groceries 100 for clothing 200 for entertainment that's how a typical budget works and when my husband and I first started looking at our finances and started caring about personal finance we definitely did our budgeting like this we had a dollar amount for each category and then we even went so far to take that money out and have it in an envelope so we would take it out in cash say 300 for groceries and we would put that in an envelope and that is what we could spend every month and we did that for a bunch of different categories like clothing entertainment you know other you know all of the categories in cash except for like a rent and stuff like that and this really helped us get an initial idea of how much money we were spending in different categories every month because before that we had no clue at all if you would have asked us back then what we spend each month on food or on gasoline or things like that we would have had no clue so doing the line by line cash envelope method really really helped us get a control over our spending and understand how much our spending in different categories however we found this to be very hard to stick with we didn't really see this as a long-term solution that is of course very time-consuming to have to do this every single month and we always struggled with the okay do I need hair dye this month where does that come from or some months I don't need anything out of a certain category and we just felt like it wasn't flexible enough for us and at this point we felt like we had a control over our spending and we had a general understanding of where we're headed financially so we started looking into other options and that's when I found the pay yourself first method so the pay yourself first method is actually extremely simple and all it means is you pay yourself aka you put money into savings or you put money into investments or you put money into a retirement before you buy anything before you pay any bill the reason why this works really well is basically because it goes against how most people attempt to save and invest in the future most people say okay I'm gonna get paid I'm gonna pay my bills I'm gonna spend some money on things that I need I'm gonna try to enjoy my life a little bit spend some money on entertainment and then the leftover money will get saved it will get invested it will go towards paying down my debt it will go towards a vacation savings account but often the month goes by you don't do it another month goes by you don't do it a year goes by and you don't do it because you keep finding that as hard as you try there is just no money left over after you pay your bills pay your groceries and things like that and try to enjoy your life there's just not enough left over and this is kind of setting yourself up for failure because what you're doing essentially is paying yourself less right paying your actual self investing in your future in your life as opposed to giving your money to everybody else you know that you owe money to whether that's bills or shopping or things like that you give them all your money first and you don't leave anything for yourself so you are paying yourself last so if you have been struggling to save or invest in your future and you don't know what is wrong with you do not beat yourself up everybody struggles with saving in this way it is really really hard this method absolutely will not work because repeat after me you guys life will eat up whatever cash you leave available life will eat up whatever cash you leave available so there is never really going to be money left over so when you do the opposite and you pay yourself first you are creating an environment of scarcity so when you create this environment there is just not a lot of money left to waste because you paid yourself and then your bills and then you had that little bit left over for flexible spending there's just not a lot left to waste so when you prioritize your future which means retirement investing savings debt repayments you are forced to live on the amount of money that is left over so basically every single time you get paid the first bill that you need to pay is a bill to yourself and once you develop this habit of paying that bill to yourself every single month it will become just a part of your routine and it will really help you to build wealth it will enable you to build wealth because you'll actually have money to do something with and of course the earlier that you start the better of course because of compound interest and everything I'm gonna make a whole other video on that and how that works kind of compound interest for beginners but basically start as soon as you can because the earlier you can start the better so how do you actually start to pay yourself first how does it work the way that I see it there are four steps so let's get into the steps the first thing you need to do is prepare there are a few things involved with preparing to pay yourself first and the first thing you need to do is get a general idea of all of your fixed and you're flexible cost that you have every single month so your fixed costs are those bills that come around every single month no matter what and they're usually the same every single month then flexible costs are things like entertainment clothing dining out going out for cocktails going out to eat you know stuff like that so then you are going to compare your income to your cost so both flexible and fixed add those up and if you have an overlap if you have some money left over that is the amount you can start paying yourself first so if you have a four thousand dollar income two thousand five hundred in fixed costs one thousand three hundred and flexible costs that means you have two hundred dollars left over that you can start paying yourself first now you're probably going okay Sarah how convenient but I did the math and there is definitely nothing left over so this is just not going to work for me I totally get it because I have been there I have been where there is just literally no way that you could start paying yourself first and that's why this exercise is so important because it might make you realize that you really need to make some serious lifestyle changes so of course your fixed costs are a little bit harder to reduce but it is possible you could move somewhere more affordable you could cut you know things like cable you could get it more simpler cell phone or internet plan and things like that there are ways to reduce your fixed cost so that's one place that you could start and of course with your flexible cost there are all sorts of ways you can reduce your spending on you know groceries and entertainment and things like that so if you did the math and you're like Sarah there's no overlap it's not going to work this is totally normal that is half of the point of this is to get you to realize that you're gonna have to make some lifestyle changes in order to invest in yourself and in your future so one thing you can do is reduce your your costs your expenses every single month but you also may need to increase your income and for a lot of people you're gonna have to do a combination of both you're gonna have to increase your income and reduce your cost which is definitely something that we did so let's go back to the example of having $200 left over but maybe after you review your cost you realize you can cut them by 300 every single month by not going out to dinner and not doing unnecessary shopping and all of a sudden you now have 500 every single month that you can pay yourself right so these numbers are flexible for a lot of people and perhaps you can increase your income by getting a part-time job you know working a few nights a week and maybe that will increase your income by a thousand dollars now all the sudden you have 1500 to pay yourself first which is a massive life-changing amount of money okay so that is the whole preparation step that is step number one get a grip on your cost and play with those numbers see what you can do when it comes to reducing your expenses and increasing your income so the second step is to write down your goals in different areas so these are goals like pay off my debt save money for retirement save for an emergency fund set aside money for my kids college education or start investing in the stock market write down your goals in different areas and some people have different strategies some people choose to do one goal and get all the way there and then stop and then do the next one so that is something that we did for example when we were paying off our debt we put all other goals on hold and we put everything that we made we paid ourselves well we didn't pay ourselves technically because we paid it all to the debt that we owed until that was completely wiped out and then we started doing other goals like saving for an emergency fund or retirement so it kind of depends on how you want to do it right now we do work towards multiple goals at once right now we're currently increasing our emergency fund and saving for retirement at the same time but write down your goal areas and then come up with a plan are you gonna do them one at a time or are you gonna do a few at once the third step is to decide how much you want to put to those goals every single month so you've done your preparation you understand how much you have to pay yourself first now you know which different goals you're working towards so you need to decide how much money you're gonna put towards each of those gold categories and if you get to this step and you realize you can really only do 50 or 20 dollars a month towards different goals do not get discouraged because this is about building habits it's about making a habit of investing in yourself and your future so even if you can't do a lot it is still worth it just to develop the habit because if you cannot manage on smaller incomes it's gonna be hard to manage it when you have a higher income so no matter what your income no matter what you can save start developing the habits now but for the sake of this video let's say you've decided you're gonna put 500 a month into your emergency fund you've decided that that is a goal that you're gonna set for yourself you're only gonna do one thing at a time and you're gonna put 500 a month into your emergency fund that is your goal the fourth step is to treat that decision like a commitment okay it is now a bill make that $500 a bill to yourself and that is the first bill that you pay before you pay any bills or before you buy anything you have to learn to commit to stick with it to put that money in a separate account and not touch it it takes time to develop these habits and you really have to make a commitment to yourself that you're gonna do it so let's go back to saying you make 4,000 a month and now you've decided you're gonna pay yourself 500 a month that obviously leaves 3500 left over you're going to need to pay your fixed expenses with that your rent your health answer insurance etc etc with that and then what we actually do with the leftover is take it out in cash so we would pay ourselves the 500 and then pay all of those fixed bills that you really have to pay every single month and then whatever is left over which is not a lot for groceries and food and all of that kind of stuff we in our household do take it out in cash just to ensure that it's very clear this is what we have for the month but at that point it's very easy because you've already taken care of your future you've invested if that was your decision or you've saved if that's your decision or you're paying off your debt and then that money can be spent I love this method because it is guilt-free spending now you have that money and you can spend it however you want because you're taking care of the bigger picture and I know this method can sound a little bit strange a little bit scary a little bit like hey Sarah why wouldn't I pay my rent first isn't that super important but trust me once you take on this commitment you find a way to pay your bills like I said for some people it might require taking on a second job which I have definitely done in the past or it might make you realize I need to make a career change to increase my income I've also done that in the past and also remember you can turn the intensity up or down if you're trying to pay off debt maybe you want to do that super intense and you want to cut all of your bills to almost nothing and take on a second job and pour everything into that you want to pay yourself super fast and aggressively but then maybe once you get there you can turn it down a little bit and you say hey I can put a couple hundred towards my retirement and I'm good but this works trust me it works it plays with your motivation if you just say hey I want to save 300 this month and when I get to the end of the month I'm gonna try to put that away it's really not gonna work whereas if you pay yourself that money first then you have to live on the rest and you might have to pass on a dinner or shopping in order to pay your rent or health insurance that's definitely something that most people are willing to do so it really plays with your motivation I love this method I think it's super effective so that's it for today's video I really hope you guys enjoyed it if you want to hear me talk more about personal finance leave this video a thumbs up so I know that it's a topic you are interested in and I'll talk to you guys very soon [Music] [Music]

Channel: Sarah Nourse

Views: 48,377

Rating: 4.9344611 out of 5

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Id: CNAMunUtTTw

Length: 14min 10sec (850 seconds)

Published: Tue Mar 19 2019