Saving $8K in a year is no easy feat. It’s a lot of money to stack up in a short time. Nevertheless, there are ways to make it substantially easier.
Here’s the short answer:
To save $8,000 in one year, spend $666 less than you make every month. The most effective way is to cut down on your most significant fixed expenses like housing, and transportation.
For a more general guide on how to save more money, check out this article: The 4 Steps To Save A Lot Of Money Fast
Most articles offer generic advice on specific expenses you can cut down on. I don’t find those articles particularly helpful.
Instead, I will guide you from A to Z, and help you make a monthly plan customized to your circumstances.
In fact, if you follow this guide, and stick to the plan for one year, you’ll save $8,000 in one year guaranteed.
I might also suggest reading this other article to figure out how much you should save every year to reach your financial goals.
Anyways, let’s get into it!
How To Save $8,000 In A Year:
First of all, let us break it down to a monthly timeframe:
$8,000/year = $666/month
In other words, if you save $666 every month, you’ll have stacked up $8K in one year.
Oh, and before we get going:
I’ll write this as a simple step-by-step guide, which will take you from having $0 in savings, to having $8,000 in savings in one year. The steps take some work to complete, but they’re not complicated, and I’ll provide examples in each of them.
Step one and two is about cleaning up your finances, and figuring out what your average monthly income and expenses currently are.
In the final step, we’ll create a budget suited for you. This budget will lead to $8K in savings after twelve months, provided you stick to it!
Suggested reading: How to Save $30,000 In One Year
#1: Calculate Your Average Monthly Expenses
Calculating your expenses is almost the same as making a budget.
The difference is that budgeting is “planning future expenses”, which is not the goal of step #1.
Instead of planning for the future, we’re going to look into the past.
We’re trying to figure out where you are now, and later in the guide, figure out where you need to go.
Let’s try to figure out how much, and how, you are spending your money. To get a good estimate, go through the following steps:
- Get a list of your expenses for the last three months. We’ll take the average of three months because it varies a bit from month to month. Lists like this can often be found in your online bank account. If you don’t have any way of figuring this out, you should start tracking your spending by saving receipts and logging them weekly.
- Sort all the expenses into “categories”. By categories I mean stuff like “housing”, “transportation”, “food”, etc. When budgeting, we’ll call these categories “items”.
- Add all the expenses in each category together. For example, if you had 10 different expenses of $14 each on the “transportation” category in the last three months, add it all together and write “$140” as your total expense for transportation. At the end of this, you should have the total amount spent in the last three months in all the different categories.
- Divide all the “total expenses” for each category by three. Remember, we got the expenses from the last three months. We need to divide it by three to get the average monthly expense.
- Add it all together. This will get you your average total monthly expenses from the last three months.
Suggested reading: Is Saving 40% Of Your Income Good?
After completing the five steps listed above, you will know the following:
- How much money you spend on average in each of the categories per month.
- How much money you spend on average every month in total.
I like to sort these facts and numbers into a table. Here’s an example of what I would make (with random numbers):
|Housing (rent, electricity, water, etc.)||$500|
|Transportation (Car, bus, Uber, etc.)||$200|
|Food (Groceries, eating out, beer, etc.)||$250|
|Insurance (Health insurance, life insurance, etc.)||$200|
|Clothes (Pants, jackets, shirts, etc.)||$75|
|Personal care (Gym, makeup, supplements, etc.||$80|
|Subscriptions (Netflix, Spotify, Disney+, phone subscription, etc.)||$40|
|Hobbies (Guitar strings, wheels to longboard, books, etc.)||$50|
|Entertainment (TV packs, bowling, football games, etc.)||$100|
|Miscellaneous (Birthday parties, Christmas gifts, and “other stuff”)||$35|
I like to use Excel to make these tables. In there it’s easy to add numbers, manipulate the numbers and get a nice overview.
If you’re scared by how much money spend every month, read one of these articles:
- Living On $1,800 A Month: Budget, Lifestyle And More
- Yes, You Can Live On $2,000 A Month! Here’s How & Where:
Alright, now that you know how much money you spend every month, and how you spend that money, let’s move on to the next step:
#2: Calculate Your Average Monthly Income
Income can be much more than just your salary. For todays purpose, all money that comes into your account counts as “income”.
It’s also important to get the monthly average income. This means you should include “once a year stuff” like money gifts you might get on Christmas, or Birthdays, a potential tax refund, etc. Just remember to divide it by twelve to get the monthly average!
Just like in step #1, I like to organize this in a table.
Below you’ll see an example of my income a few years back when I was a student.
|Source||Income (monthly average)|
(A normal salary)
(From ads and my newsletter)
(Norwegian students get money (loan+stipend) every month)
Christmas and Birthday gifts combined divided by 12)
One way to figure out all the sources of income you have is to look at your bank account history and filter for “incoming” (or whatever your bank calls it). Figure out what amount of money comes from what sources, and calculate the monthly average.
Once you’ve made something similar to the table above, you’re ready for the final step!
#3: Make A Budget
You’re ready to make a budget now that you know your monthly expenses and income.
The budget we’re going to make will ensure you’ll save $8,000 within one year (as long as you stick to it!!).
Follow these three steps:
- Take your monthly average income and subtract your monthly average expenses. This tells you how much money you have left (or overspend) every month on average. This is your “baseline” monthly savings/debt growth.
- Make a budget such that your total expenses are $666 lower than your total income. Do this by manipulating the different expenses in the list of expenses you made in step #2 when calculating your monthly expenses. Make some heard decisions, and cut down wherever you’re able to do so. More tips on this in the next section!
- Stick to the budget! If you follow the budget for 12 months, you’re guaranteed to save $8,000 in one year! (given your income doesn’t decrease)
To summarize, this is what you need to do:
Make a budget that is $666 below your monthly income and follow that budget like a maniac for 12 months.
As promised, here’s an example of a budget that’ll save $8K in a year:
|Source (Income and Expenses)||Amount|
|Income – Expenses||$666|
If you’re struggling to find the extra money every month when making the budget, I’ll give you some tips on that in the next section.
If you’re too far away from the target, you can consider reading this article instead: How To Save $2,000 In One Year
Best Way To Reach $8,000 In Savings In One Year:
Reading other articles about saving money, they usually give you tips like “cut out Netflix”, or “stop drinking coffee”. This is generic advice, and although it’s true that it’ll save you some money, it isn’t nearly enough to make $8K in a year!
Cutting out the small things makes a small impact on your budget.
The hands-down best way to go about it, in my experience, is like this:
- Figure out the three items/categories, in order, you spend the most on. Usually, it’s housing, transportation and food, in that order.
- Cut down on the biggest things, in a permanent manner. For example, moving into a cheaper apartment makes you save lots of money (because housing is a huge expense), and you’ll save the money EVERY MONTH without having to do any additional work in the following months.
- Do NOT spend the saved money on other things. Automate your savings such that your disposable income, your “fun money”, is the same as before you cut down on housing/transportation/food.
I personally did this, and it turned my finances upside down!
I saved 40% of my income by moving into a cheaper apartment closer to work.
The apartment was only 20% cheaper, but since housing was such a huge expense, 20% amounted to hundreds of dollars.
In addition, living closer to work made transportation much cheaper (almost free) because I didn’t have to drive to work and back every day!
An additional benefit of this move is that it’s hard to undo. It takes a lot of work to move back to the old apartment, or something similar to it. For this reason, I saved 40% of my income EVERY SINGLE MONTH without having to put in any more work, stay disciplined month after month, or even think about it.
To summarize, here’s the basic philosophy you need to adopt to save $8,000 in one year:
Make frugal decisions regarding the “big things” that are hard to undo.
To get more details on this, read my article about saving money despite paying high bills.
Conclusion: How To Save $8,000 In One Year:
To save $8,000 in one year, you need to limit your expenses to $666 less than your monthly average income. The easiest way to achieve this is to make frugal decisions on your largest fixed expenses.
The number one way to consistently save more money is to move into a cheaper apartment closer to where you spend most of your time. For me, this was work and friends. This simple move enabled me to save 40% of my income, every month.
The concrete steps to follow are:
- Calculate your monthly expenses.
- Calculate your average monthly income.
- Make a budget with total expenses $666 below your average monthly income.
- Stick to the budget.
Good luck, be safe!
Suggested reading: Is Saving 20% Of Your Income Enough?