How to stay disciplined with savings categories?
Hoping for advice on how best to stay disciplined with a savings goal.
When budgeting each month, once the core goals/necessities are met, any extra goes into an Auto Purchase fund where we're saving for a new car. Meaning it's variable depending on how pay periods and other income work out.
The problem I'm finding is that it's very easy to pull money from that Auto Purchase fund when we inevitably go a little over in another category. Let's say we had something like $400 leftover after filling out the rest of the budget at the start of the month (using a buffer from the previous month). So that $400 goes into Auto Purchase. Then during the month we go $50 over in clothing, $25 over in restaurants, and $75 over in groceries. We pull all of those overages out of the Auto Purchase category, which is an easy target and is already pretty variable month to month anyway, and suddenly we're only saving $250 toward a car instead of the original $400, which is nearly 40% less.
I just feel like we're not making enough momentum with the Auto Purchase savings and it's too easy to pull money from it. And it's not a super urgent savings goal so we don't feel as much pressure as we did when getting out of student loan debt several years ago.
Any tips on how we can be better disciplined about this, given that the monthly funding is variable? Do we need a bigger "Stuff I Forgot to Budget For" category so we're not drawn to the Auto Purchase category? Should we set a monthly funding goal for Auto Purchase but keep it more conservative?
Thanks for any ideas!
I would recommend setting a specific goal for your Auto Purchase in order to keep some momentum. You can either use the Monthly Contribution or a Target by Date amount. I find that as soon as you set it as a specific goal, it becomes harder to take money from it. When the funding is what is left over, then if you overspend in another category, there is not as much pressure on keeping it in Auto Purchase.
Silver Guitar said:
And it's not a super urgent savings goal so we don't feel as much pressure as we did when getting out of student loan debt several years ago
This sentence is why I am suggesting a goal. If you want to make it urgent or give it pressure because that works for you, then you need a specific goal. And I would likely go conservative so that you are consistent.
Also, check those categories that you are overspending. Are there any trends such as the same category every month? you might need to accept that as much as you want to cut down, you are not in reality. Increase the funding and then maybe try smaller cuts on a go forward to work towards trimming it down.
Over time, we got rid of our "Stuff We Forgot" category. We are comfortable that all purchases fit into our current category structure. We can move budget if it is a surprise but overall we see that less and less. If it is a new category entirely, then we have that conversation and decide where the money will come from to fund.
As you can see, it all becomes interconnected.
A math exercise that may help: calculate the total amount you allocate and spend for transportation-related expenses and figure out what percentage of your net income that is. (fuel, insurance, registration, maintenance, and repair plus the savings amount)
Your variable monthly rate for car savings may be too aggressive for your budget given all the other priorities and timeframes you are currently trying to work with and meet.
If your current allocation percentage is above 15%, I recommend that you try establishing a lower set monthly saving amount, one that you're less likely to adjust or raid, maybe try setting it at the minimum you've been able to consistently contribute, and only throw extra in after you've determined you truly have that extra not needed elsewhere.
When setting my own savings amount for next car purchase, I also calculated what I budgeted/spent on fuel, insurance, registration, maintenance, and repair (after I finished paying off my car loan), so that when I added in how much I was allocating for my next car, the total was no more than 15% of net income. I read that 15% of net for transportation recommendation in a financial article years ago, and it stuck. It then became reinforced when I found that 15% limit really works in my budget, income, and lifestyle. My total transportation costs are running at 12% of net income. In the last five years, that rate has allowed me to save up an amount equal to 1/3 of my annual net income for car replacement. I hope to get the fund up to 1/2 of my annual net income before it becomes necessary to go car shopping. My current car is 12 years old, and I take very good care of it, so that is looking very possible.
edited for clarity.
You need to figure out how much you really need to fund that auto purchase category. What is the total amount you are planning to spend and when? Take that total, subtract the amount already in the category. Divide by the number of months. The number you get back is how much you need to fund it every month. Let me repeat that. It's the amount you need to fund the category. Every. Month. No more, and certainly no less. Set that as the monthly contribution target.
You could also do a Target by Date, but that one adjusts the monthly contribution when over or underfunded, but I prefer to form the habit of turning everything into a fixed monthly amount.
Hi, Silver Guitar ! All these suggestions are awesome, and I have one that you might consider before you dig in on them. What if you reviewed all of your other categories first before you set a Target in your Auto Purchase category? It sounds like a key reason that less progress is being made is that some of the money you default stick in that category every month actually needs to do different jobs for you. It sounds like you're kicking yourself for not being disciplined enough, but I invite you to look at things a bit differently: maybe you simply don't have $400 every month to save?
A budget should be a realistic look at our needs and priorities, and here, it seems like there's some extra spending that might be needed in Groceries, or Clothing, or Dining Out. In which categories do you see consistent overspending? If you adjust the Targets in those categories first to reflect the average you're actually spending, it will become clearer to you just how much you can realistically save in your Auto Purchase category. You won't find yourself taking from this Savings category when the other categories are adequately funded.
Thanks, all! All super helpful advice. I had read Dave Crumbleholme's article "Find The Money, First" awhile back but revisited and think I may finally implement it. Even though I've been YNAB-ing for over a decade, I still rarely am actually opening the budget to check before making purchases. Making a habit of always figuring things out first seems like a habit that could have a major lasting impact. As well as leaning into goals and specific calculations so I have a set amount I'm going toward.
Thanks again for these responses!