Saving Made Simple

Looking for a few simple ways to boost your bank account without scrounging for change under the couch cushions?  You’ve all heard people talk about ways to make extra money by doing all kinds of crazy things, but not very many people talk about what to do with it so that you don’t have to resort to desperate measures again.

Like many college grads, I struggled at my first “big kid” job to put anything away in savings.  It seemed like between rent, bills and student loans I could barely stay above water, let alone think about setting anything aside for a rainy day.  I knew that I needed to make a change, but I wasn’t sure how; where was I supposed to come up with this extra money?

“Pay Yourself First”

The turning point for me was realizing that if my car broke down, if I had even a minor medical emergency, or if I lost my job I would be in complete financial limbo; I didn’t have anything to fall back on, and that feeling was awful.  Deciding that I didn’t want to feel that way anymore, I started doing some reading and came across the phrase “Pay yourself first” – the idea that before you pay a single bill each month, you should put money straight into savings.

Where a lot of young people get tripped up is in trying to save whatever is left at the end of the day, but by setting money aside before you can spend it, you miss it less.  Instead of seeing that you have money in your account and deciding that you can probably see a movie or meet your friends for happy hour, you’ve already eliminated the temptation of spending money that was meant for savings.

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The easiest way to accomplish this is through scheduled deposits; if you get paid on the 1st and the 15th, set up an automatic transfer from your checking to your savings on those days as well.  You’d be surprised how easy it is to adapt to a slightly smaller paycheck rather than debate with yourself about what you can scrape together after all your bills are paid.  Some companies even let you split your direct deposit into separate accounts, further removing the temptation to redirect those automatic transfers.

The general rule of thumb in personal finance is to have at least $1,000 in an emergency fund at all times; I find this a great place to start since it’s practical and within reach for most people over a period of several months.  Set yourself a goal and stick to it – even $50 set aside each paycheck makes a huge difference at the end of the day, and since this emergency fund can mean the difference between financial security and disaster, you’ll be glad you made the effort.

“Needs” vs. “Wants”

The flip side of saving before you spend is asking yourself what you’re actually spending money on; are there areas where you can cut back?  Most of us like to think that we’re fairly savvy when it comes to spending, but when I actually took a look at my bank statements, I was astonished to see where my money was going.

Without realizing it, somehow my biggest expense had become food.  Our rent was relatively cheap, the bills weren’t much to speak of, but it seemed like nearly every day there was a food purchase – local restaurants, coffee shops, Costco trips, lunch with coworkers, you name it.  By spending a little bit of time looking at my purchase history, I realized that I was spending an excessive amount of money in this area, and decided right then to make more meals at home instead of eating out so often.

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Looking at my bank statements in such detail did two things; it showed me an area where I could definitely afford to cut back, and it made me more conscious each day of where I was spending my money.  In today’s age of plastic, we forget how easy it is to spend when you aren’t handing someone cash out of your pocket; there’s something to be said for a physical manifestation of something’s value, and feeling your pockets literally lighter after a purchase has lost its meaning.

Reminding ourselves of this fact and being aware of it can help to put things in perspective; some people swear by going back to cash to get their finances in order, and it’s not a bad plan (as long as you aren’t someone who loses things often).  For me, it’s more about being conscious of what I’m spending and why – do I really need to make this purchase, or did I wander down the wrong aisle at Target and wind up with 14 picture frames and 3 candles in my cart?

Day to day purchases are a great place to challenge your spending, but I also find that most people overpay on their monthly bills compared to what they “need”.  Shutting off lights and conserving water are good places to start, but do you really need the NFL package and HBO?  When my husband and I moved into our first apartment together, we decided we could live without cable for a little while; fast forward two and a half years later, and we never missed it – we made due with our $7.99/month Netflix subscription and watched the occasional football game at our local watering hole.

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As with anything in life, the goal here is balance – don’t starve yourself to put a few bucks in the bank, but find a plan that works for you.  I’ll admit that I still go out for the occasional happy hour, but “treat yo self” only works if it’s just that – a treat.  Making conscious choices about what is actually important to you is the key to saving; is this purchase going to further your financial goals, or set you back?

“Extra” Money

Now that we’ve covered saving from your paycheck and cutting back on spending, let’s talk about “extra” money, which I like to call “extra” because it’s the money we forget about.  If you get a check in your birthday card, a bonus at work, or a tax refund, consider putting it straight into savings.  Since it wasn’t money you were planning on having anyway, there’s little chance you’ll miss it while it earns you some interest in a savings account.

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Making a habit out of stashing these little “extras” is a great way to get started on saving; a few bucks here and there might not seem like much, but consistently putting money away will earn you interest over time, and can grow into a nice little emergency fund or down payment down the road.  Challenging yourself to stick to these habits can be tough, but will pay off in the long run – and in the meantime, a glass of wine at home beats happy hour at the bar any day.  Cheers!

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