This Aerospace Engineer’s 6-Step Plan Helped Him Save Over $25K — How You Can, Too
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Cynthia Measom
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Chris Cluff
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Ed Coleman is an aerospace engineer with a flair for simplifying complex systems, including his personal finances. After navigating the financial challenges of a divorce, Coleman developed a six-step plan to save over $25,000 and get his savings back on track.
However, his approach to budgeting and saving is not just for engineers. Instead, think of it as a universal blueprint that can help anyone improve their financial well-being.
By implementing Coleman’s straightforward strategy, you can craft a budget that fits your life and sets financial targets that are within reach. This isn’t just about saving money — it’s about creating a strategy that fosters financial security.
Step 1: Calculate Your Base Take-Home Pay
Identifying what you earn after all deductions gives you an idea of what you have to work with each month.
“I like monthly budgets since my primary expense is housing, paid monthly,” Coleman said. “To keep things easy, I budget for the smallest month or 28 days. That’s four weekly paychecks, two bi-weekly paychecks or two twice-monthly checks for a 14-day pay period.”
According to Coleman, the strategy of budgeting for a 28-day month not only simplifies the math but also affords you an extra “bonus month” within a year, providing an unexpected lift to your annual finances.
Step 2: Calculate Your Fixed Expenses
“Fixed expenses make budgeting easy because you don’t have to think about them,” Coleman said. “Just set up autopay and never miss a payment. Do this for your mortgage/rent, utilities, streaming video subscriptions, allowances for kids or anything else you can think of that you pay monthly. The more fixed expenses you have, the easier your budget becomes.”
Pinpointing your fixed expenses each month is about being aware of your financial obligations and meeting them without fail. Make a list of each fixed expense and its amount so you know where you stand.
Step 3: Set a Variable Expense Budget
Variable expenses change from month to month and can include expenses related to eating out, entertainment, groceries and gas. Although you won’t be able to pinpoint exactly what you’ll need, you should still set a budget.
“It’s important that you keep the variable expense budget healthy,” advised Coleman. “Don’t make it so lean that you blow the budget every month or can’t cut out fat when things pop up. Be honest. Be healthy. Be real. This is discretionary spending, so be sure to use your discretion and not overspend this account. For my house, this is $1,200 per month, or about $25 a day.”
Step 4: Set Up a Budget for Personal Expenses
Personal expenses, like buying the latest electronic gadget or taking up a new hobby, also deserve their place in your budget. Coleman advises that individual budgets are key to financial harmony, especially when shared expenses are involved.
“My wife and I each get $500 a month of personal money,” Coleman said. “This money is ours to spend or save as we like, and we never have to worry about it. Also, since it isn’t used for anything critical, you just spend however you like until it’s gone — or don’t. It doesn’t matter.”
Step 5: Calculate Your Savings
“Simply put,” Coleman said, “your savings is everything that you haven’t spent from your take-home pay.”
Coleman said he puts $26,650 per year in savings, but that wasn’t always the case. At first, the extra money from his paychecks went toward paying off debt. Later, he had to make a decision to lower his expenses.
Savings are the foundation of your future financial health, so make a plan to start putting some money toward it each month and increase it regularly.
Step 6: Use Allocated Direct Deposit or Automatic Transfers to Separate Your Money
Coleman advises having separate accounts for expenses and savings and automating the deposits.
“By setting up allocated direct deposit or automatic transfers, you’ll make sure all the money goes where it belongs,” he said. “This is the secret sauce to actually saving money.”
When you set up your funds to automatically go where they need to go — either to your spending or savings account — you don’t have to think about it. This makes it easier to save because you won’t miss the portion of the money that never hits your checking account.
Implementing the 6-Step Strategy
Embracing this strategy starts with a hard look at your financial situation. First, calculate your income carefully, followed by a detailed breakdown of your fixed and variable expenses. Next, set personal spending limits that reflect your lifestyle without interfering with your saving ability. Then, calculate the amount you can realistically save each month. Finally, automate your spending and saving deposits into separate accounts.
Regularly revisiting these steps to adjust for changes in income or expenses keeps your budget relevant and responsive to your lifestyle, while helping you to reach your financial goals.
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