Life comes at you fast. You’re doing alright, then all of a sudden you have a bill that you can can’t afford to pay. Maybe you have a bit of credit card debt that adds to the pressure, and you’re still paying off college loans.

Or… you have no debt, but you just can’t ever get enough money in one place to afford a down payment on a car that you need.

Do you constantly live in fear of going broke? Don’t panic.

No matter what your situation is, there is a way that you can start making progress today towards building up your savings. You need to know what you are working with, where you are trying to go, what you are going to do about it, how you’re going to do it, and how you’re going to keep doing it.

Even if you have never thought about money, you can understand this guide. Once you have these 5 habits down, you can think about more advanced methods for saving and investing money.

1. Create a Budget

This word probably makes most people cringe, but let me tell you why it shouldn’t. When someone tells you to “build” a budget, all they mean is to add up all of your fixed monthly expenses.

The simplest reason to build a budget is to be able to account for all of your expenses so that you know how much money you have left over to spend on whatever you want. Now, before you go crazy with this leftover money, let me break it down.

There are 3 parts to a budget: Expenses, Income, and the difference between them.

The first step is to add all of these expenses together. Include here what you might expect to pay for food and gas and things that accumulate throughout the month.

I recommend basing your budget on a one month period because most of expenses occur on a monthly basis. Rent, car payments, cell phone bill, credit card payments… the list goes on. The best place to start is by looking at the previous full month’s expenses which you can simply forecast into the future.

Say you have a monthly expenditure of $1250. What you need to do next is calculate your monthly income.

The second step is to calculate your total income. If you only have one source of income, then this is easy.

The third step  is to subtract your Expenses from your Income. This will give you the difference that you have left over to play with. This is the fun part!

The Budget comes down to one thing: self-management. If you want to manage something better, the first thing you need to do is to assess the current situation. How can you make changes to anything if you do not know the first thing about it?

By spending 20 minutes building a budget, you can see exactly what you have to work with. Lucky for this person, their budget has turned out to be positive ($1350), meaning their income is larger than the sum of their expenses.

With this, we move into the next the tip.

2. Figure out your savings goal

I know that you may be thinking about this for the first time and you don’t want to think about retirement savings right now. That said, you need to understand that that savings goals will change over time.

Look at the short term. What things in your life have the potential to need attention or repair? You might crash your car, your dishwater might pack it in. These considerations are important, but there is one thing that matters more than anything else and that is the possibility of losing your job and your source of income.

In the short term then, your goal should be to save enough money to be able to survive through 3-9 months of unemployment. This number fluctuates depending on what job industry you are in.

If you work in a retail setting, it is unlikely for you to need 3 months to secure a new job, but if you are in a highly specialized profession or if you chose to use this opportunity to transition to a new profession you will need more time.

Your savings goals will be different from mine or your neighbor’s, but as a bare minimum, you should always have 3 months of income in reserve. In our example, the individual should work as quickly as possible to save at least $9000.

We don’t need to consider other income factors (odd jobs) unless you are likely to lose them in conjunction with your main source of income. But do what makes you feel most comfortable.

3. Start to save 20% of your income

Woah! That’s a lot. When just starting to save, it is essential to build that savings account as quickly as possible.

By completing steps 1 and 2, you know (1) what you are working with and (2) where you are trying to go. Next, you need to determine how you are going to get there.

If you have determined that you are going to need 6 months of income to feel secure in your situation, given our budget, we need to save $18,000. Again, this sounds like a lot.

Think about it this way: Saving 20% of your monthly income would be $600 a month. From your total $1350 surplus, this still leaves you with $750 to play with. At this rate you will reach your goal in 30 months. All you have to do is keep your job for less than 3 years, and you will financially safe.

Saving at this rate also will protect you against other unforeseen liabilities along the way. Say you break a window and have to replace it. This will take a chunk out of your savings and extend your savings timeline, but saving 20% of your total income will protect yourself from foreseeable liabilities as well as get you well on the way to your first goal.

Let’s say that you reach your first goal of 20% after 36 months (because of a few setbacks). What is your next goal? You’ll have to decide these things for yourself. Some things that fit into this categories of goals include saving to buy a new car or put a down payment on a house. Maybe you want to save to pay for a wedding or have a baby.

The principle of saving 20% percent of your income is great idea. However, this is a stage where you can decide to reduce the input into your savings account, or split your savings into different accounts. You might think about putting continuing to put 10% into the original savings account and opening a longer term savings account where you put an additional 10%.

We won’t talk about retirement plans here, but that comes later…

4. Start Cutting your Spending

This doesn’t have to be the 4th step. If you can start cutting your costs today, do it. If you are living pay-check to pay-check you are in no place to be going out every weekend. You may say to yourself that you should live as well as you can with what you have. But let me tell you, living pay-check to pay-check is not living with what you have, because within a month or two, you will get a speeding ticket that you can’t pay and you’ll wish that you had more money.

I put this at number 4 because it might be the case that you have enough money after fixed expenses to spend on a nice tome out or an occasional vacation. If this is the case, then you should decide how much you need to cut in order to achieve your goal of 20% savings.

Think of your savings as an additional expense that comes before you even think about buying those concert tickets. This way, your savings will be a priority and you won’t keep cutting into them accidentally. Once these things are aligned, you can adjust accordingly.

In our example, we have $600 going into savings each month. This leaves $750 to spend on extra items. Some of this will inevitably be eaten up by odd trip to the outlet store or the occasional online order. We can chalk these things up to necessity items (things that you can survive without, but are a priority when you have disposable income).

The rest will be spent on leisure items: dinner out with friends, movie tickets, Netflix subscription (yes, not a priority – unless you are a movie critique). This is the are that you need to cut back first when the shoe pinches. Then move to necessity items. There is not excuse to not save 20% here.

If you find yourself in the opposite situation where you cannot make ends meet, let alone save 20% of your income, your priority is to either improve your income source, or decrease your fixed monthly expenses.

This may include searching for a new job or earning a promotion. If your monthly costs are too great, maybe you need rent a smaller apartment, move in with your parents, or move to a cheaper city.

Moving in with your parents may sound like the last thing that you want to do, but in the end,  you will have to anyway when you get into debt or never starting to save money and you have to declare bankruptcy.

5. Build Accountability

No matter what level of savings you are able to achieve, you will likely need to set up a system to keep yourself on plan and accountable to your savings goals. We will all have moments when we justify a purchase in our mind even when it has to dip into our savings.

One way to do this is to set up a direct deposit that automatically deposits a certain portion into a separate savings account. Most banks and employers will allow you to do this, although it may have to be a specific value instead of a percentage.

This helps you keep your priorities in check by not allowing you to put off or forget to transfer the money into the right place.

Further, you can add limitations to the way that you can access your savings accounts. Most banks have smart phone apps that let you transfer penalty-free to your checking account in a pinch.

By limiting access to only allow transfers to be done on the phone, for example, you will be much less tempted to dip into resources that have been allocated to savings.

Find a friend or coworker with whom you can share goals. Just having someone else be aware of your savings goals will go a long way in encouraging you to stay on track.

If you are married, you may have joint accounts. This helps to keep people accountable as two sets of eyes naturally deters “cheating”. Be sure, however, to discuss savings goals with your significant other in just the same way as I outline in this guide.

Conclusion

So! You are now well on your way to being financially secure! Following these steps are elementary for everyone to do. It may sound like saving so much of your income will hinder your freedom, but let me tell you, the exact opposite is true.

By having financial security, your options in the long-term are going to be far greater than they would be otherwise. Life WILL certainly throw a curve ball at you at some point and you cannot let it destroy all of your progress.

You will, in no time at all, have more choices with where you are able to live, what you are able to invest in, and what risks you are able to take. Security gives you the freedom to do the things that you want to do, instead of leaving you powerless and at the mercy of fate.