The #1 Allowance Mistake New Savers Make

You’re setting your savings too low.

With the Allowance Method, your main savings goal is to build your emergency fund, pay off debt, and invest for retirement. We recommend putting 10% of your household income toward these goals.

But saving 10% isn’t going to cut it.

Life doesn’t stand still. Eventually you’ll want a new mattress, a new car, landscaping for your backyard. If you’re only saving 10%, big lifestyle purchases will come along and wreck your progress.

That’s why we recommend saving 15% instead of 10%. Split it like this:

• 10% toward your emergency fund, debt payoff, and investing
• 5% toward the upgrades that make life more enjoyable right now

One important note: don’t touch that 5% until you’ve built a 3-month emergency fund and paid off your debt. Until then, all 15% goes toward that goal, no exceptions. Getting out of debt and building a cushion is the whole foundation the rest of this is built on.

Give Yourself a Fun Savings Goal

Once your foundation is solid and your savings is trending up 15% each month, you can use your savings to improve and take care of your space. 

We like to always have a savings goal. It’s a fun way to cover bigger purchases that give back to the home you love, one goal at a time.

A few ideas for your 5% goal money:

• Redo the backyard
• Get a new mattress
• New patio furniture
• Repaint the home
• Kitchen appliance upgrade
• New couch or living room refresh
• New curtains, rugs, or window treatments
• New landscaping
• Updated bedding
• Buy a new car

Here’s how to set a goal:

1. Get your baseline. The Allowance Method has you track your savings every month, so pull up your most recent entry. That number is your baseline — don’t let it drop below this. E.g. Baseline: $8,000
2. Price out your next upgrade. Say new curtains would cost $2,000.
3. Triple the price tag. You need $6,000 before you buy them.
4. Add that to your baseline. Your target savings: $14,000.
5. Hit the number, then buy. When your savings reaches $14,000, get the curtains, guilt-free.

Why Triple it? 

We want 10% of your household income to go towards your retirement and 5% to go toward fun lifestyle upgrades. To collect enough “goal money” without touching that 10%, you need to save three times the price tag. 

Then once you hit your number, you can buy it and your retirement progress won’t have lost a dime!

Enjoy Taking Care of Where You Are

It’s hard to convince yourself to spend money on things like new curtains, a nicer couch, a redone backyard… None of it is essential.

But it’s all good. It honors the space you live in, and once you have it, you’re always glad you did.

Forking over the cash to get there is the hard part. That’s the beauty of the Allowance Method. You get to enjoy spending on the day-to-day, save up for your next upgrade, and lock in your future by building your emergency fund, paying down debt, and investing.