Are you living paycheck to paycheck and want to break the cycle? Do you want to learn how to save money? Then you’ve come to the right place. Many people think that saving money is easy to do. For some, it is. But for others, particularly those that are struggling financially, saving money is indeed very hard. Why is this?
Why Is Saving Money Hard?
When you are struggling financially, you do what humans do best – you focus on how to survive. It’s what humans have always done. When we focus on surviving, we only think about and care about the here and now, the present. We don’t care about next week or next year. We only care about today.
This process encompasses everything about human life. If you are trying to lose weight by not eating (aka starving yourself), you are going to stay overweight. Why is this? Because your body is trying to survive and so it will store fat and use muscle for energy since this is the most efficient thing it can do.
Likewise, when you are living paycheck to paycheck, you aren’t interested in saving for retirement or a vacation next year, you are only concerned with how to pay those bills that are sitting on your desk right now.
The question is how do you balance this inner need for survival while focusing more on the long-term?
How To Save Money
The very first thing you need to do is automate things. It’s simple to set up automation. All you have to do is open up a savings account and then set up an automatic transfer from your checking account to your savings account. I have my automatic transfers set up on the 15th and the 30th of the month since that is when I get paid. This works for me. Choose what dates work best for you.
By automating your savings, you avoid having to focus on the long-term. You can just focus on the here and now and let automation worry about the future.
Once you decide on dates, you need to figure out an amount to transfer. The biggest mistake you can make is transferring too much. You want to transfer as much as you can, without noticing you have less money in your checking account. For many, that might only be $10 twice per month. I know it isn’t a lot, but don’t focus on the amount at this point.
A quick story about me, when I graduated and finally found a job, I was contributing a cool $20 per paycheck into my 401k account. It’s all I could afford with the credit card debt I had and my student loans. I was OK with this amount though because I understood the power of compound interest. That was 10 years ago. While over time I did increase my contribution amounts, I have turned those $20 bi-weekly contributions into close to 6 figures. You can do this too.
If that story doesn’t sway you, I have one more example for you. Think about how you are marketed to. Many times you are getting something free for 30 days and then you start paying. Why is this? It’s because of everything I talked about in the beginning of this post. You are going to buy this product or service because it is free now – the part you are focused on, the now – and the payments start later, where you aren’t focused, the future. Automating your savings is the same thing. You get to focus on today, the automation focuses on the future for you.
Set up automatic transfers, start off small and slowly build up over time. Many times though, people fail to increase their savings as time goes on. Luckily, we can help with that as well.
Increasing Savings Over Time
OK, so you have set up your automatic transfers but you need to figure out how to increase the amount you are saving over time. Welcome FutureMe.org. This is a free website that lets you email yourself at a future time. Before we go any further, it doesn’t work in reverse and let you know who wins the Super Bowl in 2018 so you can bet the house and strike it rich.
FutureMe.org works like this: you write an email to yourself and then decide when to have it sent. On that day in the future you will receive the email from yourself. In a nutshell, it’s a reminder for the 22nd century. You might be wondering how this will help you save more. Here’s how.
Write an email to yourself to be delivered to you in one year. Make sure the email is honest and heartfelt – remember you are the only one reading it. Say something like:
Remember last year when you read that great blog post on MoneySmartGuides about how to save money? Well the future is here and it’s reminding you to increase the amount you are saving. I know, you think you can’t spare another $20 but you really can. Think about how great it feels now looking at your savings account with all of that money in it and how much greater it will feel when you see a lot more money in there. You can do this. It’s $20 a month! Is being depressed and unable to afford anything in the future worth $20 to you?
It’s that simple. In fact, you can even take this one step further. Maybe you get a tax refund every year in April. Send yourself a future email reminding you to take just 10% of that refund and save it instead of spending it. Or maybe you get a nice bonus during the holidays where you can do the same thing and save 10%.
Or better yet, maybe you can send yourself an email in December reminding you that the credit card debt from buying too many Christmas gifts isn’t worth it and that will help you to keep your spending in check over the holidays. The choices are endless.
The reason the future email works is because it is a reminder. Studies have shown that you are more likely to reach a goal when you are reminded of that goal. Think of how often you decide to do something and then fail 6 months later. Why is this? You aren’t reminded of your goal. If you don’t remind yourself to increase your savings amount, you are most likely not going to do it.
How To Save Money – Your Action Steps
To recap everything we went over, if you want to learn how to save money, you need to:
Automate Savings and Start Small: Open up a savings account. I personally use Capital One 360 (formerly ING Direct) and love it. In fact, if you open a savings account using my referral link and deposit $250, you’ll get a $25 bonus. That’s a 10% bonus for opening a new account! You don’t even need to change your checking account either.
Once your account is open, set up the automatic transfer to savings. Remember to start small. I can’t stress that enough. Decide how much you think you can save each month without noticing a change to your lifestyle. Even if it is $10 twice per month, it’s better than nothing. If that is too much work, try a 100% automated approach instead.
Increase Your Saving Amount Annually: Go to FutureMe.org and set up an email to yourself as a reminder to increase your savings amount next year. Make sure you also add in to increase the amount you are saving in your retirement plan at work as well in the email.
Learning how to save money isn’t something many of us think we need to learn how to do, but in fact we do need to learn how to save money. If you take the steps I’ve outlined above, you will set yourself on a path to creating wealth in your life. Lastly, if you need help cutting expenses from your budget so that you can save even more, be sure to read my book, Spare Change: Adding It Up Can Change Your Life.
Readers, what are your thoughts the difficulty of how to save money?