Spending less helps you have money to save but it’s also important to create systems to encourage ourselves to buildup our savings. In other words, ways to make us see that money as unspendable on everyday items.
Good finances are all about habits, not how much money you have at any given time. People of all different income and wealth levels can have good money habits (or bad ones).
It’s important to set savings goals – short-term, medium-term and long-term. Here are some suggestions for ways to meet them.
Automatically set aside money
A great option is to automatically put a portion of each paycheck in your savings account. Either splitting the initial deposit into the two accounts, if your employer will do that, or having an automatic transfer the day after your pay is deposited.
It doesn’t have to be a big amount. Start with $50, or even $25. There are 26 pay periods in a year, so $50 saved from each check adds up to $1300 a year.
If it helps, think of the difference that could make in your next emergency. I like to keep in mind that savings is for me and my family, just in the future.
You can set up the automatic transfer with your online bank account. Tell it to transfer the money on a set schedule, depending on how you get paid.
Does your employer offer any help?
Take advantage of employee savings plans, retirement plans and other employee benefits, if your job offers them.
For example, if your job offers 401(k) matching, you should see if it makes sense for you. If you set money aside in your paycheck for your 401(k) retirement account, a lot of companies will match it up to a certain percentage. So if you set aside 1% for long-term savings, they’ll basically pay you an extra 1% toward that savings.
Just don’t forget to also save for the short term because it’s hard to touch your 401K before a certain age.
Focus on saving new money as soon as you start earning it.
Let’s say you are getting a raise. Direct all your current pay to your checking account and spend as usual. But direct 50% of the raise amount to your savings (and the remainder to your checking account).
It helps you not miss it, because you’ve never had it before!
Likewise, if you get a bonus at work or receive other unexpected income, direct 90% of it to savings and use the other 10% for usual expenses or a special fun item.
Current pay –> checking account
Raise amount –> ½ to checking account
–> ½ to savings account
Bonuses –> 10% to checking account
–> 90% to savings account
Unexpected income examples – presents, refunds, work bonuses, selling old clothes, etc.