If you’re not used to saving money on a regular basis, you might find the idea a little overwhelming. This is especially true if you are living paycheck to paycheck.
However, saving money is possible for almost everyone. Consider the story of Ronald Read, a gas station attendant, mechanic and janitor from Vermont who never earned what most would call a lavish income.
When Read passed away at the age of 92, he had amassed a net worth of over $ 8 million. How? ‘Or’ What? By implementing a regular savings and investment plan in its modest budget.
Read was a fan of blue-chip stocks who struggled to part with a dollar – at least with a dollar that could be spent on himself. He didn’t mind giving to others and funded college degrees for his two stepchildren.
When he died in 2014, Read bequeathed the majority of his fortune to local charities. The moral of the story is that even those with lower incomes can probably save at least some money. Here’s how.
How to start saving money (even on a tight budget)
Let’s be honest: Saving money on a tight budget is going to take a bit more finesse than for those with a lot of disposable income. But there are steps you can take to save more money, regardless of your budget.
1. Create and stick to a budget
I know: it’s the dreaded “B” word. I also had a strong aversion to budgeting. The thought of living on a budget made me feel like I had a dictator standing over me, telling me what I could and couldn’t do with my money.
However, once I started managing my money on a budget, I learned that I actually had more control – not less – over my money.
Once I started budgeting (and using a budget’s best friend: expense tracking), I could see at a glance where my money needed to go (via my budget) and where it was actually going (via expense tracking).
Taking these two steps has helped me eliminate what I like to call the “spending black hole”. It’s the money that seems to disappear from your bank account every month without being counted.
The black hole of spending
Here is what I mean. When I started budgeting, I designated $ 600 per month for groceries, $ 150 per month for gasoline, and $ 100 per month for dining and entertainment.
But I found that I was continually exceeding my budget in these categories every month. Why? Because I wasn’t tracking my expenses.
Once I started tracking my spending, I could see how close I was to meeting (or exceeding) my budget numbers. From there, I could control my spending in one area to make sure I was meeting my goals in bigger budget areas like savings.
After adding the expense tracker to my budgeting plan (I use a simple Excel spreadsheet), I found out that I was actually spending almost $ 900 per month on groceries, $ 250 per month on gasoline, and 175 $ per month in entertainment and dining.
Since I wasn’t sticking to my own plan, I ended up going over budget every month and as such had no money left to save.
And that brings me to the next step.
2. Make savings non-negotiable
You will find it easier to to save money if you treat your budgeted savings amount as an invoice. Pay yourself at the start of the month or every payday, just like you would with any other bill.
It’s so easy to put savings on the back burner for “if” you have money left. The problem with this type of savings “plan” is that you will probably never have too much money.
The extra cash deposited into a checking account often seems to end up in the retail world, whether it’s extra trips for take out dinners or random purchases at your local big box store.
The antidote is to treat your savings like any other creditor. Imagine someone from your bank coming to your door, asking for money for their client: your savings account.
Imagine receiving letters in the mail demanding payment with the threat of sending your “bill” to a collection agency. Send collection letters to yourself on behalf of your savings account if you need extra motivation.
You would never leave payment for a car, house or rent unpaid; the threat of collection letters or a bad credit rating motivates you to make your payments on time.
Have the same attitude with your savings. Treat it like a bill and pay yourself first, even if it’s only 1-2% of your income each payday. (Try a zero-based budget plan to help).
As silver expert Clark Howard says, just start. Put something in your savings every payday, even if it’s only $ 5. As you get into the habit of saving and learn that you still have money for other things to do, you can increase the amount of your regular savings.
3. Reduce unnecessary expenses to increase savings
If you find it difficult to put even a small amount in your savings account each payday, you may need to decrease spending. Evaluate your budget and see which expenses can be reduced or eliminated.
Cutting back on unnecessary spending to boost your savings can seem overwhelming at first. But I promise you the sacrifice will be worth it once you see your savings account balance in four or five digits.
Here are some other tips to increase that balance.
4. Put “found” money in your savings
“Found” money is money that you didn’t plan to have in the first place, so there’s no reason you can’t put some (or all) of it on your. savings account. Here are some examples of “found” money.
- Birthday or holiday monetary gifts
- Money from the tax return
- Real estate tax refund money
- The money you found lying around the house
- The money you get for selling an item you no longer want or need
- Additional income from bonuses or overtime at your job
I know it can be tempting to spend “found” money on something fun. But putting that unexpected kind of money into savings puts you on a faster path to a stuffy balance in your savings account.
Make a deal: commit to putting a certain percentage of all “found” money in your savings account. For example, put no less than 50% of all “found” money in savings.
Use the rest for pay off the debt or something else that will help improve your overall financial situation. If you feel like you really need to “spend” some of that money, set aside a small percentage to do so and save the rest.
5. Increase your income to save money faster
Another way to save more money on a tight budget is to earn more income. For example, you might get a part-time job at a local store or restaurant. Or you can start your own small business.
Other options include sell stuff you no longer need or do “retail arbitrage”: get a great item for free or at a low price, then sell it for a profit.
Another thought: work a few extra hours at work, then ask for a raise.
Or do the opposite by increasing your income and try to reduce your expenses.
Find a way to reduce your house payment or your rent. Adopt a strict spending ban for a month or two, and try to spend money only when you absolutely have to.
Work towards getting lower rates on other regular expenses. As you reduce your monthly spending, you can take the extra money and transfer it to your savings account.
I firmly believe that almost anyone can find a way to save more money. Will it take an effort on your part? Sacrifices ? A change in your lifestyle?
Probably yes. But anything that’s worth it is worth investing in the work and discipline it takes to achieve that goal.
Try this: Imagine your life a year from now after putting some of these suggestions into practice. You have $ 5,000 or $ 10,000 in your savings account instead of $ 100.
You have the money to cover an unexpected job loss, an expense you didn’t expect, or a good cushion to save for an important goal like buying your first home.
Money is certainly not everything, but it makes life easier. You can take that – and your new money-saving plan – to the bank.