Fattening up that piggy bank does not have to be a scary process! If we start small and where ever we are, we can pile up a sizeable savings.
If you have been working for several years and have not yet started that savings account, fear not, it is never too late!
Photo by Andre Taissin on Unsplash
1) First off, you need to figure out where all your money is going. Start by tracking what you spend it on over the course of a month.
Separate out your expenses into categories such as costs of living, entertainment, food, etc. Once you have some data to work with, you can have a better idea of where the money went.
Try to identify some costs that you can cut out. Do the math for how much money you can save from cutting these costs and save that amount as soon as you get your paycheck (this is called “Paying Yourself First”).
For example, if you realize that you have been buying a donut ($1.25) every day ($6.25 per week) on your way to work, try to cut that down to once or twice a week. If you cut down to one donut per week, check out how much you can save over time:
Daily
5 days x $1.25 = $6.25/week
4 weeks x $6.25 = $25/month
12months x $25 = $300/year
Once Per Week
1 day x $1.25 = $1.25/week
4 weeks x $1.25 = $5/month
12months x $5 = $60/year
Total cost saved after one year: $240
$240 extra dollars in your pocket every year just by changing one habit! It might not seem like much, but that $240 can be your first step towards financial independence.
If you do these calculations for any expenses you find in your own data, move that money immediately when you get your paycheck. If your bank allows for separate categories or vaults, put that $25 every month right into the vault and forget that it exists.
2) Another way to cut down expenses is to downsize your life. We are all prone to Lifestyle Inflation, wherein the costs of our life continually grow as our income grows.
If we are aware of this, we can avoid it or change it before our financial future is at risk. For example, just because you got that big raise, does it really mean you need a more expensive monthly car payment?
Or that bigger house that you can barely pay for?
Probably not.
3)More, bigger, better things do not necessarily give us more happiness in the long run. Instead of throwing money into the black hole of consumerism, find the joy of living below your means.
When you live below your means, you have space between your paycheck and financial ruin. In that space, you can start your savings!
A method to avoid lifestyle inflation that Tony Robbins brings up in his book Money, Master the Game, is called “Save More Tomorrow.” With this method, Tony Robbins encourages people to divert their future raises into their saving/investing bucket.
This ideally happens before you ever see the increased paycheck so that you are not tempted to go on a spending spree. The best way to stick to this is to have the money automatically come out of your paycheck, and have it deposited into a separate savings account.
Photo by Jeremy Bishop on Unsplash
4) That leads us to the very important step: CHOOSE A BETTER BANK.
Unfortunately, most of us stick to the bank or credit union that our parents use because it is familiar and trustworthy. The downside to this is that most traditional brick and mortar banks offer zero to extremely low interest rates on your deposits, often as low as 0.01%!
To add injury to insult, they charge “low balance fees” when your account is low on funds, “overdraft fees” when a transaction takes more than you planned on, “maintenance fees” for the privilege to keep your money in such a wonderful establishment.
Why would anybody keep their hard-earned money in these banks?
I waited far too long before making the switch to a high yield saving account (HYSA) and an online only bank. In my HYSA I can finally get an interest rate where I can see a real change to my funds every month. In my online bank I am not charged dumb fees by a bank that provides zero value to their customers.
In my HYSA (Marcus) I earn 4.40% APY and in my online bank (SoFi) I earn a base 1.2% APY or 4.5% APY when I have an active direct deposit. These percentages get your money growing above and beyond the measly 0.01% a brick-and-mortar bank might give you.
5) Once you have your money growing in a friendly environment and you have cut out some expensive habits, you can also take a ride on the frugal side to cut down on more costs.
Do you like to read? Get a library card!
Spend time driving every day? Take the bus or ride a bike!
Do you like to shop? Go to a second-hand store or check out www.freecycle.org for free things your neighbors are trying to pass along!
By taking part in any or all these lifestyle changes, you can drastically cut down on your monthly expenses. Take for example the simple library. If the average book costs $20, and you read one new book every month, that is $240 saved every year!
Not a fan of books? Libraries also have tons of other resources such as audiobooks, free computer access, and free events. Tap into your local library and see what expenses you can replace with a library card!
6) Finally, the most common response to money questions: earn more.
You can ask for a raise, start searching for a company in your field that pays more, or start selling your skills in your free time.
Anything that you do, remember to not let the dreaded Lifestyle Inflation get in your way, and set aside your extra earnings for the future.
There are an endless number of articles on side-hustles so I will not include that discussion here. The short version is this: figure out a skill or set of knowledge that you possess, and enjoy participating in, and find some way to **add value to another person’s life. **
Many successful entrepreneurs talk about the earning potential that comes from focusing on adding value first. The more value that you can add to somebody else’s life, the more money they will pay you.
Before you know it, you will not only have helped people with your skill, but you will also have a chunky piggy bank waiting for you for when you need it.
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Referral link to Marcus HYSA: https://www.marcus.com/share/EME-WAG-KKYZ
Referral link to SoFi Online Banking: https://www.sofi.com/invite/money?gcp=34ad8ce8-ada0-40df-bc16-63484a0d4aeb&isAliasGcp=false (Receive $275 when you set up a direct deposit)