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23

How to Save Money Every Paycheck

I’m here today to talk about savings! Yay! One of the questions I’m asked with alarming frequency is, “How do I save money?” It seems like such a simple question with a simple answer (”Just save.”) but it really isn’t. Here I’ll suggest a couple of ideas which, when put into practice, should get you into the mode of saving money regularly.

First things first, you cannot save money if you have a negative cash flow. A negative cash flow is when you have more money going out than you have coming in. This is the desperate situation many people who are in debt find themselves - where I was a year ago. It is, in essence, the definition of debt: owing more than you have.

If you are working with a negative cash flow right now, I suggest you first read another article I wrote entitled How to Save an Emergncy Fund When You Have a Negative Cash Flow. Assuming that you have a positive cash flow, there are three things you can do that will really get you saving money.

Plan Where Your Money is Going

One of the main problems we run into when trying to save, even if we’re living in total financial abundance, is that of actually saving money regularly. It’s so easy to just spend the money that comes in as it comes in, and not give a second thought to where it all went. That is, until we reach the end of the month and ask ourselves, “Where did all my money go?”

Budgeting to zero is a great first step in getting an accurate look at your finances. If you haven’t already figured out where your money is going, it’s a good idea to start there.

A Zero-Budget is a total no-brainer and I’m sure if you’ve ever sat down to do a budget, this is the way you did it. (Please note that if you live on a flexible income, you should budget your expenses based only on the minimum amount of money you will make every month. Everything on top of that is extra.)

The simplified version of a zero-budget is this:

List the money you have coming in each month (all paychecks and other liquid income).
Write down all your expenses each month and total them up - INCLUDING “fun money” that you allow yourself to spend on whatever you want.
Subtract your expenses from your income to get a remainder amount (hopefully this number is positive… if it isn’t, you have a negative cash flow).
Make a plan for the leftover money (for savings, whatever) until there is no more money left over at the end of the month. This means that all your money is budgeted out, down to $0 (hence the name).

Once you’ve done a rough budget in this form, you should have a good idea of what you can save each month. But now, we find ourselves knowing how much we can save, but not actually saving that amount. Here are my suggestions to move you to the next step: actually saving money each month.

Bill Yourself

If you’ve budgeted to zero, you should now have a good idea of how much money you can comfortably save each month. But taking the leap from knowing how much you can save and actually saving that amount is a challenging one.

The first suggestion I have is that you bill yourself. Using myself as an example, I am determined to save (and am capable of saving) $600 per month. (I hope to save more like $800 to $1000, but sometimes I just can’t with unexpected bills and other larger purchases I decide to make. I’m not too worried about it.) So each month when I gather my bills and pay them, I also pay myself $600 into savings - as if it were a bill.

This distinction might not seem important to some of you, but think of it this way: if you intend on savings $600/month, you may or may not do it. If you decide to pay yourself $600 a month toward savings, you must pay it regularly, and with intent - like a bill.

My suggestion would be to treat it like a bill and really put it in your face so you don’t forget. If you pay your bills on paper, or have a collection of paper bills that you work with, put a sticky note on the top of the pile to also pay yourself savings. If you’re like me and do everything electronically, set up a calendar to remind you to pay yourself savings each month. I use iCal, Google Calendar, and Remember the Milk, all for different things. iCal is my bills calendar, and so every month I get an email from my computer’s calendar reminding myself to pay to my savings.

I find this works really well.

Have a Goal in Mind

Here’s where I’m at right now. I pay my savings regularly, but without a goal in mind I have a tendency to make excuses and slowly fritter away my savings. Even though the money is set aside for “savings,” I’ll spend it on more clothes, a night out on the town, or some other thing that I fancy.

I notice, however, that when I was saving for a motorcycle, I never touched the money in my savings account.

So, if you’re still having trouble actually saving up piles of money, I suggest that you make a goal for that money. It doesn’t have to be an object or a purchase, per se, but have a reason why you’re saving. My current goal (since I realized recently that I needed one) is to save up my $5000 emergency fund. And after that, my goal will be to save $1000 to invest in a mutual fund of some kind. And from there, I’ll make more and more goals - so that my savings always has purpose.

If you’re interested in reading several more (awesome) tips on how to save money all the time, take a look at my post How to Save Money, Big and Small, which covers other tips for encouraging yourself into savings, as well as ideas on how to snowflake savings here and there and how to keep your hands off of your savings.

Questions? Leave ‘em in the comments
Photo by Robbie. Thanks!

Filed Under Saving, Snowflaking Debt and Savings, money and finance

Comments

3 Responses to “How to Save Money Every Paycheck”

Donna Freedman on October 11th, 2008 9:45 pm

Greetings from another Seattle PF blogger,
Hooray for you for making the decision to save. A lot of people don’t do this until much, much later in life.
I don’t know if you’re averse to online banks, but here’s what works for me: I have ING Direct take a chunk of dollars from my checking account every month.
Out of sight, out of mind — and ING pays 3% interest, much better than my bank’s rate for savings.
However, I *do* keep some money in savings at my bank. It’s there for the times when I have to pay quarterly taxes (one of the BEST parts about being a freelancer!), or when I have unexpected expenses that kite my monthly bills.
I just had to transfer a big piece of that account into checking to deal with recent (and unusual) expenses and a cash flow situation. I’ve already moved one-third of the sum back into savings and will keep putting money there until I’ve built it back up to where it was.
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Roreaddemep on October 15th, 2009 12:17 am

Dum docemus, discimus