In today’s world, it’s tough to get started saving money. Even if you work really hard to save money on your purchases, companies will flood your inbox, mailbox, and tempt you with sales to come in and spend that hard earned savings. How do we learn to put it away?
This is a post to teach you how to put your money in a bank account, hide it from yourself and make a plan to spend it at some point in the future. If you’re looking for posts on ways to spend less, check out my 18 favorite ways to spend less.
It’s important to be mindful of the difference between saving and spending.
Saving money is like a game of cat and mouse. You may work hard to reduce your expenses, but if you go out and spend that money on something else, you didn’t really “save”. Instead you just optimized your spending.
Have you ever heard the line “you saved $50 today” from the checkout cashier when you actually spent $100? There’s a big difference between spending and saving. While the allure of flash sales and deep discounts are tempting, you must be mindful that all of that money is exiting your bank account.
Saving is so much more important than spending less.
If your goal is to have control over your money and your life, saving needs to be a priority. That’s because having cash gives you options. You are protected from uncertainties, you can take advantage of opportunities, and you don’t suffer from scarcity.
You can cut your expenses on necessities down to the bare bones, but if you’re not able to keep yourself from spending it on something else, you’ll always be on the merry-go-round of having to earn to spend.
So how do we get started saving money?
Saving money means that you have created some flex in your budget. You’re earning more than you spend, and that’s a key starting point.
If you don’t know where your earnings versus spending stands, start by reading my post on how to create a simple budget. This will show you your earnings versus your spending, and you’ll need to get that spending down to create room for savings.
Once you’ve got room in the budget for saving, setting yourself up for successful savings requires 3 things:
You need to make saving a priority.
The main reason many people fail to follow through on savings is that they wait until the end of a pay cycle to “save what’s left”. Have you ever tried it?
Whenever I’ve seen this approach, the savings in the long term has been minimal… and when I tried it myself, it was zero. I always had a reason, there was a sale at the mall, or an opportunity to go out with an old friend. I was always spending exactly what I made.
The best way to make saving a priority is to make it the first thing you take out of your paycheck. On my monthly budget, I always put savings in my “Fixed Expenses” section because I prioritize those and they come first. You can get a copy of the template I use for budgeting below:
How to put it in practice:
Create a budget where savings is a priority. Put a line item for savings in your fixed expenses. Treat it like a bill and make it a required payment every month. Re-work the rest of your expenses until you are able to save the full amount you want.
Remember, you’re in control of your budget. If you want $1,000 per month for restaurants, go for it, but find a way to also give yourself the savings that you want.
You need to make savings separate
We’ve all heard the line about money burning a hole in your pocket. And it’s true: if we know there’s extra cash laying around, it’s tempting to spend it.
The first rule of thumb is to keep your savings account separate from your checking account. It’s hard to not spend money that seems like it’s there for the spending. So you absolutely have to keep it separate.
If you’re really savings-challenged, either open an account at a separate bank or ask your banker if you can hide the account when you log-in. (Out of sight, out of mind).
There’s an added bonus here: if you don’t actually separate the savings, you won’t see it grow. Seeing yourself actually achieving your goals is really motivating!
How to put it into practice:
If you don’t already have one, open a savings account. Transfer your first month’s budget amount into your savings account. Hooray! You’ve officially started.
I highly recommend doing some research to find a bank with a decent interest rate. It’s fairly easy to find 1%, and I even found 2% APR through a local credit union. Some banks even let you create sub-accounts so that you can separate different savings goals (for example vacations, college funds, etc.).
Keep in mind, not all savings goals will be kept in a savings account forever. If you have a long term savings goal, you may want to build up a chunk, then invest the money or transfer to retirement accounts. So also research the fees for transfers.
You need to make savings automatic
The second reason people fail at saving is that they make it a chore. I’m talking about the actual task of moving money from one account to another.
Let computers handle this for you. You’ll set it up once and never have to think about it.
These days, it’s way too easy to forget to actually move money around in your accounts. It seems like such an unimportant task, but if you’ve forgotten something at the grocery store ever in your life, this step is for you.
How to put it into practice:
Set up an automatic transfer from your checking to your savings accounts. Automatic transfers are usually free within banks, and some banks will even do external transfers free.
If you get paid on a regular schedule, set up the transfer for each payday. That way, you’re not staring at the higher balance all month, waiting to move the money on the last day. That leaves too much temptation, and too much risk to overspend.
Overachievers: If your employer offers you direct deposit, ask if they can split your deposit to put your savings directly into your savings account. This way the money never even hits your checking account. It’s like it never existed and it will make you ‘miss’ it way less.
How have you started saving money? Leave your answer in the comments!
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