Our family saving approach has been pretty effective, but we though it can get better, especially if we want to save to buy a new bigger house in the future. Seeing where house prices are heading, it will take a full and committed effort from both of us to save a good chunk for a down payment.
So we came up with a new approach. Instead of saving a set amount from every paycheck, we have agreed instead on how much we want to save for all of 2017 and then deciding how much each one of us (myself and my wife) will save per paycheck to get to that amount. In other words, we reversed the equation!
We agreed that $15,000 is the amount we need to save for all of 2017. We then divided that by 2 and then divided by 26 (bi-weekly) . That means each one of us will need to set aside $288 from every paycheck. Of course, this will be easier when we automate our ‘pay yourself first’ which we already do, but just have to increase the amount. Assuming all goes well, by the end of 2017, we will have a cool $15,000 saved with no much extra effort on our part.
So what is the main difference between this and the way we used to do things in the past? Well, the main difference is that we are agreeing on how much we want to save ahead of time. Before, the agreement was on how much each one will set aside from their paycheck towards savings (around $250) . Obviously, both work, but with the new 2017 method, we can save exactly $2K more which is not insignificant!
In addition to payroll saving deductions, we are free to save towards our goal of $15k using other sources (income tax return, second job etc.) – the point is, as long as we get to the goal, it doesn’t matter where the money come from (through legal means of course!). This will also mean that some adjustments will have to be made to our budget, but these will be small ones that shouldn’t affect how we spend or pay for things etc.
In future years, and assuming we have the same jobs, and with some salary increases, we can agree on bigger saving targets (i.e $17k, $20k etc.)
If anyone there is already applying this method, please share in the comments below how it has worked for you?