They say reaching your first $1000 in savings is hard. Which is true, yes – but what's even harder is trying to save your first $10,000. In fact, it seems near impossible some days.
Within a matter of two years my net worth has gone from -$13,000 to +$20,000.
Honestly, I don't know how I did it. I wish I had some miracle answer for myself and for you. However, I don't. It most likely happened because I followed the basic and simple rules of finance. Don't overspend, track your spending, increase your income, live frugally, be responsible – you know, everything your parents tell you that you absolutely hate to hear.
Well, speaking from personal experience – it does work. That is, for me. It works for me.
What about for you?
I have a feeling this solution isn't going to magically adjust everyone's net worth and help them to suddenly be okay with avoiding the mall, spending less than $300 a month on groceries, and limiting their travel. I mean, I'm surprised I've even been capable of doing those things.
So instead, let's try something new.
Do you think you could afford to save $5 a day for an entire year? I mean, could you set up a daily e-transfer, and just ignore your savings account as that "comparable-to-the-cost-of-a-latte" amount slips out? Would you even notice it had moved?
I know, it sounds silly. Why would anyone set up an automatic payment so small? Well, because at the end of the year you'll have $1825 saved without even batting an eye, that's why. (PS- that's without including potential interest gained.)
Instead of the added pressure of putting a lump sum amount of $150 into your savings account each payday, decreasing the amount and increasing the frequency could be the key to your financial struggle.
For example: I was finding it difficult to put money into my emergency fund, so I set up a $20 e-transfer to send that money away every Saturday night. Why Saturday? Well, that's easy.
My girlfriends and I go out, my husband and I do dinner – so at the end of the day, what's another $20 on top of the money I've already spent? I began to realize I didn't even notice. It wasn't as terrifying as putting $100 into that account when I already had several other payments coming out each paycheck. It was a great relief.
Why is saving money so hard?
I like to call this restraint bias.
"The tendency to overestimate one's ability to show restraint in the face of temptation."
You see, thinking that we won't spend money that is just sitting in our bank account because we have gotten through it before, doesn't mean we can do it consistently. I'd like to tell you that you can, but realistically, maybe you can't. I have hardwired my brain to ignore that money, but even still I sometimes take out an extra $100 here and there.
"This biased perception of restraint had important consequences for people's self-control strategies. Inflated impulse-control beliefs led people to overexpose themselves to temptation, thereby promoting impulsive behavior."
Well okay then, let's get rid of those impulse behaviors.
By automating our finances, we are straight up cutting the middle man (restraint bias) out of the equation. After all, he was just destroying our goals anyways. Even better? By starting small with $5 daily increments, we are allowing ourselves to adjust to stronger financial habits without really having to do too much.
Find that $5 is attainable? Bump it up a few dollars every couple of months. See how high you can get by vowing to save money each day. For example, if I make around $130 a day, can I afford to give up $5 or $10 of those dollars?
Try it out.
I've said it before, and I'll say it again. Finding financial practices that best work with your lifestyle takes a little bit of trial and error. You're going to have to test the waters to see which options are best, and how you can adjust them to set yourself up for success.
"Are you on a laptop all day? Would keeping an excel file or Google doc file help you track your expenses easier? Would it be more convenient to keep an old fashioned pen and paper type of budget? How about keeping a running tab on the fridge so that you are tracking all expenses?
"For the few that actually look at their goals again, it’s common to revisit them only at the end of the year. This is a crucial error. As our circumstances may change day to day and month to month, so will our goals. A lot can change in twelve months, which is why I propose reviewing once a month, or at the very least every three months.
Revisiting also keeps our desires relevant. It’s helps us remember that we even have them. Ideas aren’t enough, we must execute.
As the great Thomas Edison said, 'Vision without execution is hallucination.' " -Jiu-Jitsu Finance
Increasing your income
"After you have lowered your expenses, it is time to bring in more income. There are many ways to bring in more income especially during the holiday season. Maybe your full-time gig will let you work extra hours for overtime. In addition, retail stores typically hire for the holiday season. That part time holiday gig could turn into a longer gig...
Retail jobs aren't the only part-time jobs available. There are plenty of other side hustles you can pick up right at home to make extra money like: Freelance Writing, Virtual Assistant, Social Media Management." -Financially Fit & Fab
Turn on your automatic savings
"Another no-hassle way to save is by setting up an automatic transfer to your savings account. By automating your transfer, you're making sure that you don't forget or pay your savings last–and as a bonus–automating your savings means you never "see" that money and subsequently makes it sting a little less.
Two new apps that I am loving lately are Digit (which has a cult following). It automatically transfers money from your checking account you won't miss. I also love Qapital, which has rules you can set to "save the change" from your purchases. I saved over $75 my first month of Qapital, which was really astonishing to me. Click here to give it a try." -Financial Best Life
Develop the habit to spend with cash than card
"To spend with cash is also an actionable way to get out of debt. According to the research on peoples spending with credit cards; it was revealed that those who shop with credit card are impelled to spend more on luxury items because they feel they are paying with “play or fun money”. In other words, people who shop with credit card spends more than required.
Evidently, finance advisors hold a strong stand on this. They strongly advise that people who are working on eliminating their debt should cultivate the habit of spending cash, to avoid being tempted to spend on irrelevant items." -MoneyMiniBlog
Leave your wallet in the car when shopping
"This trick is simple but impactful. When doing any kind of shopping, use cash, and only take the amount of money you want to spend in the store with you. Leave all other cash, credit cards, and debit cards in the car.
This is very powerful, especially when grocery shopping. In addition to the amount you plan to spend, you can consider bringing in a small cushion of a few dollars (in case there are hiccups at the register). You will shop (and spend) completely differently when you only have a hundred dollar bill with you versus a hundred dollar bill and your debit and credit cards.
Don’t give yourself a way to spend more money than you want to — and you won’t." -Hope + Cents
Start and maintain an emergency fund
"There is no fixed formula for how much you should have in an emergency fund. Some school of thoughts say 6 months’ worth is sufficient, some say a year’s worth. Everyone’s situation is different and as such, each strategy should differ. To start however, I would suggest understanding your spending habits, and then implementing a 3-6-9 guideline.
3 Months: If you are single without kids, renting, no car, partially dependent on parents for income or any combination of these factors, start off with a target of 3 months’ worth of expenses for a rainy-day fund.
6 Months: Married, kids under 18, own a house or condo, own at least one car, or any of these combined, the base target should be 6 months’ worth of expenses (if married, base it off the income of the highest earner).
9 months: Self-employed, freelancers, anyone with a volatile job or unpredictable paycheck, 9 months’ worth should be the benchmark." -Investment Conversations
How students should avoid the debt trap
"The easiest way to prevent yourself from falling into the debt-trap is by living within or below your means (that is, not overspending). In addition, it is necessary to do research before getting credit cards (or signing any contract to take on loan/ debt) so that you really understand how it works. As a student, you must learn to treat your credit card with respect." -Investment Conversations
Build a budget and stick to it
"There are many free apps available to help you track expenses, but I always prefer using my own spreadsheets. That enables me to have the most control over what I’m doing. I understand that being able to access your spreadsheet on your phone makes tracking significantly easier, which is why I prefer Google Sheets over Excel. You can download the Google Sheets app and pull up your expense tracker wherever you are to input a transaction or monitor your spending. By combining the expense tracker as separate tabs within the same spreadsheet as the bill tracker, you can have all your finances in one easy-to-access location." -The Budget Boy
Create an automatic savings account for travel.
"Here's how this automated system specifically works for you and your travel fund. Once it's set up, it goes like this:
-Your checking account receives income.
-The next day, your checking account automatically transfers money to a separate (different bank) savings account—aka your travel fund.
Know Your Interest Rates
If you have anything that you are making payments on every month, you need to know how much interest you're paying. Make sure you know these numbers, too. Ideally, you'll want to pay debts down that have a higher interest rate first. However, there is another school of thought out there that suggests paying the bill with the lowest balance first. I'd say either way is fine as long as you're making progress and as long as the higher interest rate stuff isn't astronomical.
Action: Look at your statements or call the companies to get your current interest rates on all monthly obligations.
Negotiate Lower Interest Rates
If, by chance, you ARE paying astronomical interest rates on any of your liabilities, call and try to negotiate a lower rate. Oftentimes, if you've demonstrated a history of paying on time, the company will work with you to reduce your rate. The only trick is, you have to ask.
Action: Know your numbers and call the companies to negotiate if you're paying high interest rates.