How to Realign Your Savings Plan for 2022 (3 Simple Steps)

When it comes to personal finance, building wealth, and eventually being able to retire, your success heavily depends on one thing:

Your ability to save money.

It doesn't matter if you're making millions of dollars a year or if you're the smartest person in the world. If you can't save money, you'll never be able to sustain yourself without working.

Like Warren Buffet says:

"If you can't find a way to make money while you sleep, you will work until you die."

Not really an ideal-sounding life, is it?

That's why having a savings plan is so important. With savings, not only can you avoid costly debt, but you can also use your money to make even more money (with and without having to work).

But, we're getting ahead of ourselves...

If you want to start saving more money in 2022, it can be helpful to step back and reassess your current situation. Assuming you already have some financial goals written down, here are three steps you can take to realign your savings plan for the new year:

Step 1. Create a Bare-Bones Budget

Theoretically, if you had to live on as little money as possible, how would your budget look? That's what a barebones budget is. It's a spending plan containing only your absolutely necessary living expenses.

For example, if I was to create a barebones budget, it wouldn't include things like eating out, streaming service subscriptions, movie theatre nights, new clothes, or those impulse-buy snacks at the grocery store. It would only include my absolute essentials like rent, food, gas, insurance, medical needs, and similar.

It's not exactly exciting, but creating a bare-bones budget serves two purposes:

It allows you to see how little you could live off. This can be quite eye-opening and may help you recognize areas in your budget where you're wasting money. If the situation ever arises where you lose your job or receive a large pay cut, you can revert to your bare-bones budget temporarily until you get back on track.

If you're still having trouble with this step, just imagine that you're rebuilding your budget from the ground up. By starting with only the essentials, you give yourself a chance to reconsider all those additional monthly costs and to see how they're truly affecting your current savings plan.

Step 2. Focus on the "Big 3" Expenses

Now that you've analyzed your spending and created a bare-bones budget for emergency situations, it's time to focus on reducing your housing, transportation, and food costs. These are often labeled as the "big 3" expenses because they take up the largest percentage of an average household's budget.

In fact, according to the U.S. Bureau of Labor Statistics, housing, transportation, and food costs accounted for over 60% of the average household's expenditures in 2020.

While your numbers might not be the exact same, there's a good chance these "big 3" expenses categories are taking up a large part of your budget as well. And that means any savings you can find here (no matter how big or small) could have a large positive impact on your budget.

Plus, since these costs are generally necessities, making reductions here will optimize your regular budget and your bare-bones budget.

To help you get started, here are some money-saving ideas for each category:

Housing

Housing accounted for a massive 34.9% of the average consumer's annual expenses in 2020. Here are some ideas to help you cut that number down a bit:

Get a roommate. This obviously isn't for everyone, but if you're open to the idea, it can save you a lot of money. Just be sure to do your due diligence before having someone move in (here are some tips).Rent out your extra space. If a new roomie isn't on your list of new year's resolutions, why not utilize your space in another way? Using a platform like Neighbor can help you rent out a spare room, attic, driveway, or similar, for storage purposes only. This won't cut costs as much as having a roommate, but it can bring in some easy passive income. Move to a cheaper area. While this is probably the most high-effort option, it can result in some sweet savings and is super viable if you've recently started working remotely.Negotiate your rent. Yes, your rent is negotiable! It might not seem like it, but it's always worth a try. Check out Ramit Sethi's negotiation guide for tips. Refinance your mortgage. It's important to do your research before taking this route, but in the right scenario, refinancing a mortgage can save you a lot of money in interest payments over the long term and could allow you to pay off your house more quickly.

Food

Food accounted for 11.9% of the average consumer's annual expenses in 2020. Of that, only 3.9% was categorized as food away from home. So, although eating out (and ordering in) less often is a good start, it's important to look for ways to optimize your grocery shopping strategies as well. This is especially important in 2022 as grocery prices continue to rise.

Here are some ideas that should help:

Plan your meals. Curate a list of your favorite recipes (i.e. ones can you make often without getting bored) and pick the ones that are the cheapest to make that week/month. Planning your meals and cooking multiple batches at a time (for freezing and/or leftovers) gives you an opportunity to stock up, buy in bulk, and use ingredients that are in season/inexpensive at the time. This will result in less food waste, plus, the more familiar you are with your recipes, the easier it'll be to create your grocery list and get in and out of the grocery store as quickly as possible. Time is money!

Note:If you can't stock up on ingredients due to limited space, get some friends together for meal prepping sessions. That way you can split the cost of ingredients and have a fun time meal prepping together!Make a grocery list. As mentioned above, you should always have a grocery list before heading to the store. This will help you avoid impulse purchases, cut down on food waste, and it'll make your shopping trips a lot more efficient.Scan grocery fliers. Before picking your meals and writing your grocery list for the week/month, scan the store fliers quickly for on-sale ingredients. You can use an app like Reebee to make this really easy. If any good deals catch your eye, plan your meals around them!Use cashback apps. Cashback apps like Ibotta and Checkout 51 offer additional savings on a variety of products. Similar to the above, you can scan the apps before you create your grocery list and plan your meals around the best deals. Find coupons. Yes, coupons are still a thing. They may have lost a bit of popularity, but you can find them online on sites like Coupons.com, and some companies will even mail you coupons if you ask nicely. Best of all, coupons can typically be stacked on top of cash back savings and in-store offers. Tally prices as you shop. While you're shopping, keep a running tally of how much your groceries are going to cost. This will make you pay more attention to prices (which might help you make smarter buying decisions) and it'll also help you to stay on budget.

Transportation

Last but not least, transportation accounted for 16% of the average consumer's annual expenses in 2020. With gas and used car prices on the rise, that number might be even higher in 2021 and 2022.

Here are some ways to save:

Do your research before buying a car. If you're in the market for a new or used car and you want to make sure you're getting a good deal, you need to do your research. The more you know about the car you're interested in, the better your ability to negotiate prices and avoid bad deals. Bike or walk. A bike or your own two legs are the best and cheapest forms of transportation. Use them when you can! Not only is this better for your wallet and mother earth, but the exercise will improve your overall health as well, which will make you feel better and could reduce future medical costs.Take public transport. If it's accessible where you live, taking the bus or subway is one of the best ways to save money on transportation costs. Plus, it's better for the earth and gives you the freedom to read or do work on the way to your destination.Carpool. Do you have any co-workers living near you? If you do, ask if they'd be interested in a carpooling arrangement. Rideshare on the way. Uber and Lyft both offer "destination" modes that allow you to find riders who are going in the same direction as you. This will add a bit more time to your travels, but if you can spare it, the extra cash will make it worthwhile. Plus, it's less of a commitment than carpooling.Ask to work from home. There's a good chance you might already be working from home due to the pandemic. If not, consider asking your boss. Even just a couple of days a week working from home can cut down your transportation costs significantly. Keep up with car maintenance. Paying for things like oil changes is never fun, but neglecting to service your vehicle will only result in more expensive problems down the line. Use a car-sharing platform. If you only need a car every once in a while, you might be better off renting vs. buying. Using a car-sharing platform like Zipcar can be relatively inexpensive versus paying for gas, maintenance, and insurance on your own vehicle.

Step 3. Review the 50/30/20 Rule

After analyzing your expenses and finding ways to reduce costs, the last step to realigning your savings plan is to review your overall numbers. A good benchmark to compare your plan with is the 50/30/20 rule. This rule splits your after-tax income into three main buckets:

50% for needs (i.e. your bare-bones budget expenses)30% for wants (i.e. fun expenses)20% for savings (i.e. retirement, investing, emergency fund, etc.)

For a more visual breakdown, check out our quick video of the 50/30/20 rule.

Keep in mind, every financial situation is different. Your numbers might not perfectly line up with the original 50/30/20 suggestions, and that's ok. The main metric you should be focused on is your savings rate. If you can save, at minimum, 20% of your after-tax income, you're on the right track.

In the case that you've cut as many expenses as possible and you're still not meeting the requirements of the 50/30/20 rule, you'll need to look for ways to increase your income.

Final Thoughts

If you followed the steps above, you should now have a much better idea of how to reduce your expenses and save more efficiently in 2022. If you want to optimize even further, we highly recommend checking out our top 10 financial tips for the new year.

Once you've built a consistent savings habit, paid off your high-interest debt, and built a 3-6 month emergency fund, you should then start focusing on putting your money to work. For ideas on how to get started, check out these nine different ways to invest with little money.