You heard that right! You may have thought the days of having an allowance were gone with your childhood, but we’re here to bring it back with the goal to save money! We promise there are no parents involved, and it’s more than a buck or two a week. 😉
Making sure we have money saved for a rainy day is one of those things that’s always on our minds.
Boosting your savings is an important part of managing your finances and wellbeing, but it’s not always easy. We’re sharing our experiences and how we’ve found success by implementing this elementary school finance lesson into our adult lives.
For a while, we were simply tracking our expenses and money saved without making any changes to our habits. We’d say, “we need to save more” but were slightly baffled because we’re not Big Spenders to begin with.
We’d promise to just “not spend as much on things we don’t need.”
Then the next month would roll around and we’d look at our tracker and wonder why our savings didn’t magically increase. We had a spreadsheet… what more could we need?
For us, the kick in the pants came when the dream of purchasing a home became a reality. We calculated our max purchase price, down payment, extra savings, closing costs, appliance/furnishing costs, moving costs, and, and, and,… In short, $@*! became real, real fast.
We started asking, “Can we really do this?”
The answer was yes, but it was time to slash and burn those purchases on “things we don’t need” once and for all. We needed a plan, and we needed to save money.
Hailing from childhood, please welcome back to the stage… your allowance!
Whether you’re like us and are looking to make the biggest purchase of your life to date, or you just want to boost your savings, we highly recommend an allowance system.
Let me take a quick sidebar to mention this important note: We are not trained financial advisors. We are simply sharing our experience and what has worked for us. We highly recommend working with a financial advisor in your area to set and achieve your financial goals.
Implementing an Allowance System
Step One
Become aware of what you’re spending. If you don’t already have a budget tracker, start one. It’s so, so important to know how much you have coming in and out each month.
You can create your own spreadsheet, use a template online, or find an app. Choose what you’ll actually use.
Once our tracker was in place and we had some data, we looked at E.V.E.R.Y.T.H.I.N.G. in detail. To be honest, this is a little painful, but it’s absolutely essential.
We figured out what our “non-negotiable” expenses are. Things like rent, utilities, groceries, etc.
Then we listed alllllll the things that are non-essentials. Everything we spent money on that we didn’t really need.
Now, we all have things that we don’t really need but do have room in a budget for. It’s important to allow room or this. We all have things that we don’t NEED to physically stay alive but that are important parts of our lives, make us happy, and make us who we ARE.
It has to be okay to spend some of your monthly budget on these things; you need to save money but you also need to be happy.
For example, you might take piano lessons and absolutely love it. Do you need piano lessons to survive? Nope. But if it brings you joy, relieves stress, or is a form of self care, don’t cut it out right away; budget for it.
Step Two
Determine how much you want to save each month. Once you know what you’re spending, you’ll be able to intentionally set a savings goal. To do this, think about your short- and long-term financial goals.
There are a lot of great calculators online to help you. We like the Savings Goal Calculator from bankrate.com.
Step Three
Determine your allowance amount. Yeah! This is for the fun stuff!
We decided to do a monthly allowance, but you could easily set a weekly amount if you prefer to go that route.
The basic formula we used to determine our amount is this:
Total monthly income – total monthly expenses – savings goal = extra cash
For example (monthly):
$2,500 take-home pay – $1,500 total expenses – $500 to savings = $500
Before you pop the champagne, recognize that not all of the extra cash you have each month should equal your allowance.
Now, we know we said there were no parents involved, but excuse us a moment while we put our mom/dad hats on. We highly recommend you don’t use the entire amount remaining (all of your disposable income) as your allowance. I know, we spoiled all the fun, right?
You have to remember that extra money saved will help cover any unexpected expenses.
Set your allowance amount so that you have a little extra cash left over.
This way, you’ll be covered if you have to dip into your savings for something you weren’t planning for. In months where you spend less, you get to bank that much more in your savings! Now that’s a reason to pop the (affordable) champagne!
Step Four
Decide if your allowance will be electronic or paper. You might think that, living in the digital age, this is a no-brainer, but stick with us.
We use cash for our allowance. That’s right. Paper money. Yes, it’s a total throwback to childhood allowance. No, we don’t keep it in Mickey Mouse piggy banks.
Why this “out-moded” currency, you ask?
It’s so much more VISUAL. You start with a finite stack of bills and you can see how much is left as you spend. When you want to save money, it helps to see just how much you have!
Because using cash is more visual, it’s so much harder to part with hard-earned cash when you can see exactly how much you have left. We have so many fewer impulse buys when we can see the end of our means for the month!
Paying with a card (heck, even that’s getting outdated now with Venmo, Apple Pay, and the like) makes it so much harder to see the impact each purchase makes. It feels more like a bottomless pit, which your bank account certainly is not.
It’s so much easier to swipe and go without giving a second thought. “Yeah, I need this giant wall clock… I’ll pay full price!“
With cash, you’re more likely to stop and think. “Nope. I’m going to pass on the clock, but I’ll come back if it’s on sale later in the month (if I still want it)!”
You might be wondering how we get by as dinosaurs in a modern age. For some of the more logistical issues with using cash in a world that’s more and more digital, see tips for success later in the post.
Step Five
Spend your allowance carefully during the month (or your chosen timeframe). Because you now only have so much to spend, suddenly every purchase gets more thought.
Your morning Starbucks run might turn into a to-go mug from home if you know you want a new pair of jeans. Great! Or you might get more use out of the jeans you already have, because coffee. That’s great, too!
You’re thinking now, and planning your purchases ahead, the goal to save money is top-of-mind, and that’s the whole point of the allowance system.
For us, our allowance is used for things like:
- Eating out
- Admission to movies, concerts, events
- Non-essential clothing/accessories
- Craft supplies
- Tools
- Books
If you’re allowance-ing with a partner or spouse, keep communication open throughout the month.
When certain expenses come up and we’re not sure if it is an “allowance purchase” or a “joint purchase” from our budgeted expenses, we talk it through.
For example, we purchased concert tickets from our budgeted monthly expenses. We decided that in lieu of anniversary gifts each year, we’d plan a special outing to celebrate and budget the cost.
Step Six
At the end of the month, evaluate the amount. We suggest evaluating the amount of allowance you give yourself frequently, especially early on in implementing this system.
Did you have money left over? Decide if you need to give yourself a little less allowance. Bonus! You get to save even more each month! 🙂
Did you find it really difficult to make your allowance work? Did you go over or have to scrimp and scrape? With this one, figure out what made it difficult by asking yourself the hard questions.
Was the amount just not enough? Or…
Did you overspend?
Did you plan your purchases poorly?
Be honest with yourself. We suggest trying the same amount again with raised awareness. If it’s still not working, give yourself a small raise and see how it goes. The goal is to save money, but you need to be comfortable.
Step Seven
Reap the benefits of your allowance system! Imagine yourself rolling in a huge pile of cash if it helps.
There are so many great things about implementing this system in your household.
- You’ll know exactly how much you’re spending on non-essential items. You adult, you!
- You’ll become less likely to make impulse purchases. That new pair of shoes? Maybe you’ll watch for sales, you savvy shopper!
- You will feel so good when you save money and see that savings account creep higher and higher! A spreadsheet never looked so good!
Another bonus–if you’re doing this with a partner, it helps eliminate potential arguments. Who wouldn’t love that? Once you have a set amount of allowance to spend, you know you are both accountable for that amount. No more arguing about an impulse buy, as long as it was purchased with allowance!
Tips for Success with an Allowance System
If you’re planning this system with a partner, do all of your planning together. Have open conversations about your goals and your spending. This is so important, especially since money is one of the number one things couples argue about.
Keep communicating throughout the month, and approach each conversation with an open mind. There will always be expenses that pop up, and it’s important to talk through them. Determine allowance vs. joint purchases together and stick to your decisions.
Using Cash for your Allowance
So you’ve decided to use cash for your allowance? That’s great!
We applaud you for joining our cash club and for schlepping to the ATM from time to time, but we know that this poses some obstacles.
If you’re still on the fence, consider just trying it for a short time. It could be worse… at least you won’t be standing in line writing out checks.
The main obstacle we’ve faced is that there are just some situations where you cannot pay with cash.
You might have to preorder tickets online, may find a good deal on something on Amazon, or may not want to miss out on earning points on a rewards card. This is totally fine!
Keep a “bank” for those times when you can’t pay with your cash.
Our “bank” is an envelope with an assortment of small bills. If we have to pay for something with a card, we take the cash from our allowance and put it in the bank.
We just make a note of the purchases made with a card so we don’t subtract them on our budget tracker and double-dip.
Finally, make sure you don’t carry all of your allowance with you all the time. Have an envelope (or a Mickey Mouse piggy bank) for your extra allowance. Put some cash in your wallet and leave the rest at home.
Having a limited amount will reduce temptation and impulse purchases! Refill as you need to.
What if you don’t use all of your allowance?
I know, I know. You might be thinking that you won’t have anything left over. Believe me, sometimes we don’t, and I’ll scrounge to the last penny if I have to.
Once you find a sweet spot for how much allowance to give yourself, you’ll find that you have some months where you just don’t use all of it. You could just recycle this amount when you re-up on next month’s allowance.
But where’s the fun in that?
Instead, we keep a running total (another spreadsheet, of course) of what we each have left over at the end of the month. Keeping the actual cash would be too much cash to have lying around.
We use this banked allowance on larger purchases that we’re saving for. There are certain things that we want that are out of the range of our monthly allowance. This gives us the opportunity to save money for those items.
For example, for items like a sewing machine or a power tool, we bank our unused allowance until we have enough to make the purchase. As an added bonus, this gives us time to watch for sales and ensure we really want the item.
And of course we had to make this a competition. Because why not?
At the end of each month, whoever has saved more gets to add $5 to their banked amount. We encourage you to put your own spin on this to create some competition with yourself or a partner.
We hope you’ll join us in reaping the benefits of implementing an allowance system. Leave us a comment and let us know how it goes or how you put your own unique spin on your system to save money!
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