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How to Save Money on a Tight Budget

July 23, 2021
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Question: I have a question about how to save money on a tight budget. My household is just me and my wife. We both work day jobs and she works a part time job as well, so we are pretty much living on a paycheck to paycheck basis. We are looking to put some money aside for both a vacation and household maintenance account. We haven't been on vacation in a few years and would like to have something to look forward to in summer. But we still have a lot of repairs to do around the house. Can you recommend a system to save money for these purposes?

Answer: The first step for you to do is to understand and identify your current income and expenses and write it down so you can determine what flexibility if any you have to save for both vacations and household maintenance. This process will help create your personal budget. The easier items to document of your personal budget are:

1) Fixed Income

  1. Earned income such as salary and wages. Note that you should use your net pay after deductions for federal and state taxes as well as Social Security and Medicare payroll taxes.
  2. Pension Income/Social Security – net after any tax withholding

2) Fixed expenses which can be divided into the following categories:

  1. Housing – Mortgage or rent, property taxes, homeowners insurance, maintenance and repairs and utilities
  2. Auto/Transportation – Auto loan or lease payment, gas, maintenance and repairs, auto insurance, parking, train, bus or other commuting costs.
  3. Food/Groceries
  4. Medical – Health Insurance, Prescription drugs, unreimbursed medical and dental
  5. Insurance – Life, Disability, Long-term Care, Umbrella or Excess Liability Insurance.
  6. Retirement savings – 401k, IRA
  7. Clothing
  8. Other Basic – Telephone, Personal care, dry cleaning

The items that are not so easy to document are the variable and discretionary income and expenses which include:

3) Variable Income – Bonuses, commissions, overtime, and tips. When estimating these items you should be conservative in your planning and try to use what you feel are the minimum amounts you expect, even if you plan for “zero” additional variable income. This approach will assist in helping to manage your expenses on more certain base income estimates. If you earn any variable income it will provide additional income to help meet your goals for now and in the future.

4) Variable or Discretionary Expenses which include:

  1. Entertainment and Dining Out
  2. Vacations & recreation
  3. Hobbies – tennis, golf, skiing etc.
  4. Family gifts – birthdays, holidays, special occasions
  5. Charitable gifts
  6. Miscellaneous purchases

Note that credit cards (as long as you pay them off each month) can provide a good source for documenting your spending as many offer monthly and year-end summaries of your spending by category and by month.

Now that you have identified your income and expenses and created your personal budget, it is one thing to write it down but it is another to execute it. Documenting your budget is the first step to determine if you have a projected monthly surplus or (deficit) cash flow. If you have a surplus this provides a target amount to start your savings for both your vacation and household maintenance account. If your budget reflects a deficit you need to examine if there is a way to increase your income (difficult to do) or what expenses can be decreased without creating unrealistic spending that will set your budget up for failure.

At a minimum your budget should be reviewed on a monthly basis to see how close you are to your plan and if there were any unusual items that may have derailed your goals and knocked you off –track.

If you are computer savvy and do most of your spending on credit cards and through on-line banking www.mint.com provides an on-line budgeting system for free that can download your transactions and categorize them for you.


If you do not want to use an on-line budgeting system then the old fashion notebook or envelope system make work for you. The Notebook system is where you write down in a notebook on a daily basis what your expenses were for the day and then total them for the month. The Envelope system is having a separate envelope for each category of expenses and place the expense receipt in the envelope each day that you will add up at the end of every month.

I often tell clients that one of the most important areas of their Financial Plan is to understand their Cash Flow and their sources and uses of their income and expenses. If you have a good understanding of your Cash Flow you have a much better chance of accomplishing your goals of establishing a vacation fund and household maintenance fund. As a dear friend and client who has since passed use to tell me “if your outflows exceed your inflows your upkeep becomes your downfall."