Saving money ranks high among New Year’s resolutions, and for good reason. It is important to have money in a savings account for emergencies and unplanned bills. It is also important to save up for long-term goals, such as buying a home or a pension.
If you hope to save more money in 2022, the last thing you want to do is set a goal for yourself that is unrealistic. If you do, you will set yourself up to fail. How to establish a sensible savings goal in the new year that you can actually reach.
Step 1: Assess your current savings
If you already have a fully charged emergency fund and you are doing well financing your IRA or 401 (k), you may not need to save as much money as someone with a small emergency savings and no retirement savings at all. Take a look at your savings and see where things stand. It will help you determine how many sacrifices may be needed to achieve your goals.
Step 2: Set up a budget based on your expected income
Mapping your current expenses will help you see how much money you can reasonably expect to save on a monthly basis based on your current spending. Make a list of your various bills and see what they amount to. Then compare this figure with what your expected paycheck will look like in 2022 (keep in mind that an increase may take effect in January).
If your expenses currently amount to $ 3,000 a month and you have a monthly paycheck of $ 3,300 to look forward to, that means you could end up saving $ 3,600 in 2022. And that’s without having to make any lifestyle changes.
Learn more: The complete guide to budgeting methods
Step 3: See what expenses you are able to reduce
Your budget may reflect your cost of living today. But if you do not like the way your savings potential looks without having to cut back on spending, then you may need to make some changes.
That is why step 1 above is so important. If your savings need serious work, it may be time to make some sacrifices to ramp up (whereas if you do okay in terms of savings, you may not have to force yourself to give up so many things). You will need to go back through your budget and see what bills you can cut down on, whether it is a leisure activity or your monthly cable fees.
Step 4: See how a side hunt can help
Even with cutting expenses, you may want to aim for a higher savings goal than what your paycheck allows. You can do this by getting yourself a sideline.
Now, it can be hard to estimate your side-hustle earnings before you start that concert. But if you know that most businesses in your area pay $ 12 an hour for weekend shifts and you are willing to work three weekends a month, you can get a rough estimate of your extra income, add it to your existing paycheck, and See what savings potential you are left with.
You can also talk to people who do different side jobs and see what their income looks like. For example, if you have a friend who drives after a shuttle service four nights a week, you can inquire about their average weekly pay.
To tie it all together
If you now return to our example, you may find that if you do not make any lifestyle changes, you have the potential to save $ 300 a month in 2022, or $ 3,600 a year. If you cut expenses, you can increase the total amount to $ 500 a month or $ 6,000 for the year. And if you get extra busy and increase your home pay by $ 500 a month, you could potentially end up saving $ 1,000 a month or $ 12,000 by the end of 2022. Each of these totals can be what your savings goal looks like for the year, depending on your specific circumstances.
It’s about being realistic
Many people set high savings goals and fail because they just are not realistic. A better bid? Set a goal that you can actually reach in a reasonable way. That way, you’re more likely to keep at it and close the year successfully.