Create a savings plan for your family

A savings plan that works
Start by skimming 10 percent off the top

By Robyn Passante

“Pay yourself first” is one of those personal finance tips I’ve always thought sounded important but improbable. And in a single-income family with two small boys, the idea can be downright irresponsible. I can’t pay myself first, I reason. I have to pay for diapers first. I have to pay our outrageous utility bill first. I have to pay our credit card bill first.

Those thoughts are well-intentioned, but misguided. Paying our bills is making my family a priority today. But “paying myself first” is investing in our future.

Of course we all want to invest in our family’s future. But by the end of the month if I’ve met all our bills and stocked the pantry, often all I have left to invest is just enough for a drive-through Starbucks splurge on my way home from Story Time.

That’s exactly why you have to do it first, says Ellie Kay, a family financial expert and author of 14 books, including her latest, “The 60-minute Money Workout” from Random House.

“A lot of times people set up budgets that are unrealistic or too stringent, so they have a hard time sticking with them, and savings is one of the things that falls by the wayside,” Kay says. “You have to set up your paycheck in a way in which you’re automatically saving the first 10 percent of it, in order to pay yourself first.”

That 10 percent can be in the form of a 401K contribution, another type of retirement fund, or simply a chunk of cash directly deposited into a savings account each month. However you set it up, make sure the divvying gets done without your fingerprints, Kay says, as that way you’re less likely to panic and pinch some off the top “just in case.”

Once you’ve paid yourself, pay the rest of your bills as normal. If you have money leftover, great! Either redirect it to savings or grab that venti cafe mocha. If you fall short, don’t reach for your nest egg just yet. Search until you find money elsewhere to cover your expenses — and that means getting creative.

“Do what you can in terms of trying to streamline your budget,” she says. “Go line by line, thinking about how you can save costs.” Kay suggests reevaluating some of the automatic payments people make and don’t think about, like your auto insurance payment and your homeowner’s policy. “You can call them and say, ‘I think I’m paying too much. How can I save money?’”

Make bargain hunting a second job, because it has the potential to pay like one, Kay says. Using coupons and discounts is a great way to trim your budget. But what you do with those dimes and dollars you didn’t have to spend is just as important.

“At the point of savings — right after you leave the grocery store checkout line — you write a check or transfer the funds you saved into your savings account,” Kay says. “What is the good of saving money on something if you don’t have a plan?” Do the same instant savings transfer trick with windfalls and bonuses, she says.

The most important factor in a successful savings plan is motivation, and when it comes to building a nest egg motivation is sometimes hard to come by. But especially in today’s stormy economy, it’s crucial to have a cushion set aside for a rainy day. Single-income families should have a savings account that can cover 12 to 15 months of a family’s living expenses, and dual-income families need money saved to cover six to eight months of living expenses, Kay says.

“Because things are uncertain,” she says, “it really is important to have that fallback.”