In this episode of the Make Money Your Honey podcast I’m tackling a question I hear quite often:
How do I know if I’m saving enough money?
Rather than giving you some arbitrary number or shelling out the standard “You should be saving at least 20% of your income” advice, I’m going to challenge you to think a little differently by answering two important questions and conducting one important exercise.
What do you want?
The first step in determining whether or not you’re saving enough money is to figure out what you want. As in, what exactly are you saving for?
Do you want to retire early? How early?
Do you want to buy a house?
Do you want to travel? Where?
Do you want money put away for emergencies?
By determining what we want we can more easily create a savings plan that actually works for us. This also makes it easier to actually stick to the plan because we know what we are working toward.
Why do want it?
The second important question to ask in determining whether or not you are saving enough money is “Why do want it?” Or, in this case, why do want the money?
If, for example, you determined that you want to travel, then why do you want to do that?
If you want to retire early, answer why.
Same goes for all your other options.
This is an important litmus test because if you aren’t able to answer why you want something, then it may not be the best goal for you at this time.
For example, I often time have business owners and coaching clients tell me how much money they want to make. Usually “six figures this year” gets thrown around a lot.
When I ask them why, most of them can’t answer.
Why is this a problem?
Because if you don’t know your why you won’t have the juice, the stamina or the solutions to reach your desired goals.
You also won’t have the resilience necessary when things go wrong.
There is also something extremely powerful that happens when people determine the what and the why behind their savings goals – they actually stick to them!
Crunch the numbers.
Once you’ve got your what and your why it’s time to start crunching some numbers.
For example, if you determined that you want to retire early and you know why, it’s time to determine how much money you’ll need to live on an annual basis. By determining this number, you’ll know how much you need to be saving to meet your desired goal of retiring early.
If you want to buy a house and you know why, you’ll need to figure out how much that 20% downpayment is going to be. Once you’ve got an actual number then you’ve got something to work with.
Try Values Based Budgeting
The last step in determining whether or not you are saving enough money is to try values-based budgeting.
This is when you create your spending and savings plan according to what it is you actually value in life.
For example, freedom is my main value. To me, freedom looks like traveling and having enough money in the bank where I know I’ll be okay if I have a lean month in business revenue. That means I have both an emergency fund and a travel fund.
If you’re super clear on what your values are, you can make financial decisions that make sense for you. It can also help you determine your what and your why when it comes to savings goals.
All of this is to say that when it comes to saving enough money everyone is different. People have different needs, desires, goals and circumstances.
That’s why it often doesn’t work when you tell someone what they should be doing with their money.Instead, they need to make those decisions based on what’s going on in their own lives.
Resources Mentioned or That Add Value to This Podcast
- Make Money Your Honey Paperback – Link to purchase my Amazon bestselling book directly from me. Save $2 off the Amazon list price.
- Make Money Your Honey Digital – Digital version of my Amazon bestselling book.
- Private Coaching With Amanda – Application for anyone who is interested in private coaching with me.
- How to Go On a Date With Your Budget – Blog post and video tutorial that explains how to go on a date with your budget.
- Try This One Tip and Never Worry About Spending Money Again – FinCon13 recap where I explain the concept behind values-based budgeting.
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