From Helaine Olen and Harold Pollack at PBS NewsHour:

“While many people call this budgeting, it’s more helpful to think of it as surfing a financial wave. A budget sounds fixed. But while certain expenses can be planned and occur as regularly as waves — think of your rent or mortgage, for example — others cannot.As a result, the size and shape of this financial wave changes somewhat from month to month.”

This “riding the wave” analogy is an apt one as they point to the findings from this recent study from JP Morgan Chase Institute which found income and expense volatility in the lives of individuals studied (2.5 million bank accounts). Their research found that 84% of individuals in their sample had more than a 5% change in their income and  100% had a greater than 5% change in consumption (expenses) on month-to-month basis.

The article, excerpted from their recent book ““The Index Card: Why Personal Finance Doesn’t Have to Be Complicated,” provides good suggestions on how to create a savings plan.  The five steps they list are:

• Monitor your spending – lots of apps make this easier
• Confront your spending
• Refine your expenses over time
• Create a plan
• Make sure to leave room for fun

The key point they make on how to initiate this plan is to MAKE IT AUTOMATIC through a payroll direct deposit into a savings account and/or creating sub-accounts which describe the purpose of your saving (e.g., emergency fund, vacation, house or taxes).

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.