Have you ever noticed that if you decide to save whatever money you have left at the end of the month that there's never actually any money left?
Make your savings automatic
That's why you need to set up a budget line item for savings and then take the next step of having your savings amount automatically withdrawn from your checking account and deposited into your savings account. Having your saving automatically deducted takes away the psychological factor of it, and you start to live as if that money never existed in your checking account. There's no thinking about it…you just know that on the 15th, you'll have an automatic transfer to your savings account.
If you have your employer deduct money from your paycheck for your 401(k), it's the same principle. You probably don't even notice that the money is gone since you never even see it in your account.
How does it work?
If your employer allows you to split your paycheck into separate accounts, you can set up your automatic savings that way. Or, you can set up an automatically recurring transfer that repeats each payday (or a set day each month). No need to think…it just happens.
Keep it Separate
Once the amount hits my saving account, I keep a spreadsheet with line items for everything that I'm saving for – like emergency fund, auto insurance, life insurance, vacation, gifts, and camp for my boys. I only transfer money out for those items specifically, and since they're allocated, I'm not tempted to borrow from the accounts for other purposes.
If keeping everything in a single savings account doesn't work for you, many online banks will allow you to set up several savings accounts that you designate for something specific like vacation, gifts, etc.
How about you? Do you automatically send your money to savings each month or do you hope there's money left over at the end of the month for savings?