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I like saving money. You could actually say I have a little bit of a hoarding problem when it comes to cash.
I have multiple saving accounts set up for various saving goals (emergency fund, vacation fund, car fund, college fund – you get the idea).
My sister and I were talking the other day and she may have let it slip that I tend to over complicate thing occasionally in my posts and that not everyone is as crazy as I am.
She is right!
The conversation got me to thinking about the basics of saving money.
I’ve talked about why you need to have an emergency fund (super critical in my opinion).
What I haven’t talked about is how to prioritize saving money.
Your money is your greatest wealth building tool. Without money, you aren’t going to be wealthy.
You can’t build up wealth unless you are willing to put money into a savings account. If you want to learn about investing check out this post. Introductory Guide to Beginning Stock Marketing Investing.
My readers are in a variety of different financial situations. However, one thing that they all have in common is a desire to manage their money more effectively.
I personally believe that if you have a desire, then you can succeed. You just have to start with the first step.
I believe that the first step to controlling your money is learning to pay yourself first. I’ve always tried to use the 10% rule of thumb.
The 10% Saving Rule
Always, Always, Always pay yourself 10% of your income before you do anything else with your money.
If you are on a tight budget you may have to decrease this amount. That is okay, the most important part of this rule is that you get in the habit of paying yourself first.
There have been plenty of times when I was lucky to be paying myself 1% of my income.
It isn’t so much the amount that you are paying yourself as the habit that you are establishing.
When I was 23 years old, I got a divorce, moved home and started working for Zions Bank for $24,000. I don’t remember how much money I had when I moved home, but it was less than $500. I stayed with my parents for 5 months and then rented an apartment with a friend for $400 a month. After paying my car payment of $300, utilities, insurance, and all basics I had around $500 for food, gas, and fun each month.
Although I was really tight financially, I remember that period in my life being one of the best times in my life. I had an amazing group of friends, lived near my family and lived life to the fullest.
A year later then I decided to move to Phoenix, I had managed to save $2,500. To this day, I’m still not sure how I managed to save that much money on such a tight budget.
I personally believe that the key was a habit of saving money. I just kept putting money into my savings account and made a conscious decision not to touch it.
It is super easy to over complicate personal finances. The truth is, that you just have to pay yourself first.
On a quick side note, I learned this principle from one of my favorite personal finance books The Richest Man in Babylon. It is a super easy read and I highly recommend this book.
Here are a couple of tricks I’ve used over the years to pay myself first:
1. Decide why you are saving money
You aren’t going to have the discipline to pay yourself first unless you have a specific purpose for the money. Personally, I recommend your first goal be an emergency fund. Having an emergency fund makes a huge difference when you have a car accident, the washing machine dies or you have medical issues.
Once you have an emergency fund, then start expanding. Aaron and I currently have 3 vehicles with over 200,000 miles, one of them is going to die, it is just a matter of time. Right now, my savings goals are centered around vehicles.
I also put money towards retirement and vacations. Aaron is always wanting to save money for a new gun or bow.
If you have something fun and meaningful to save for, you’ll have a much easier time paying yourself first.
2. Have a set percentage or dollar amount of each paycheck deposited into your savings account
This is something that I’ve done for years. If the money never makes it into my regular account then I don’t miss it. I just pretend that the money isn’t there and as weird as it sounds I forget about it.
I still have a set amount transferred from my paycheck into a separate savings account to this day. Personally, I think this is the easiest method of paying yourself.
Virtually all payroll systems allow for a split paycheck. You just need to submit a request in writing with your bank account and routing number to your human resource director.
3. Have a set amount transferred automatically from your regular accounts into your savings account after each payroll.
This is the same idea as the point above. The main goal is to get the money out of your regular working account as soon as possible.
Have your auto transfers setup for the day after you receive your payroll check. You’ll be amazed at how quickly you can save money when it isn’t in your main checking account.
4. Choose something small to give up each month and put the money aside.
I’ve had friends who gave up coffee, eating out, dessert or even their entertainment budget. Choose something you know you shouldn’t be doing anyway and see how much money you can save each month.
I added up the little extra treats I bought myself at the mall and grocery store one month. I was surprised to find I had spent 45 on ice cream, donuts & chocolate. It is amazing you quickly the little extras can add up. If you are a sugar nut like me, you may become a bit more healthy in the process.
5. Start small
Not everyone is a position to save 10% of their income. The goal is to work towards a higher percentage. If you have to start with $10 a week, that is fine. Who cares about the amount, just pay yourself something.
You’ve worked hard for your money, you deserve to be setting aside money for you.
I found when I first started that as I saw my savings account balance increase it was easier to set aside a little bit more money each month.
6. Stretch yourself
I know I just said that the amount isn’t important and it isn’t. What is important is that you are pushing yourself. If you can easily make your goal each week then you need to increase the amount you are saving.
When you start to seeing progress in your savings accounts, you’ll get even more excited and have an easier time stretching yourself to save even more.
7. Set specific measurable goals
You’ll never get in the habit of saving money unless you set specific goals. It doesn’t work to get to the end of the month and then decide how much you are going to save. You may be the lucky one who has extra money laying around, but most of us don’t have that “problem”.
You need to review your budget and set a realistic savings goal each month.
I’ve found it is easiest to do my saving based on a set percentage. This way, my saving increases as my wage increase.
If that doesn’t work, then do a set amount and try and increase it every 3-4 months as you get better at budgeting.
Paying Yourself First is the Way to Build Wealth
The sooner you begin paying yourself first and learning to save, the more successful at money management you will be.
Keep in mind, that it is okay to let go of your frugal mindset and spend money depending on its intended purpose.
Once you have your emergency fund going, you are going to use it occasionally – that is what it is for. Just make sure you use it for real emergencies.
The vacation, car and medical fund are going to get used.
The one I highly recommend not spending is the retirement fund.[themify_box color=”white”]
Here are some of my favorite resources to help you get out of debt:
Money Saving Tools/Classes:
- Grocery Budget Makeover – This class changed my life. I thought I was great at grocery budgeting, but this class helped me save even more money.
- 5 Dollar Meal Plan – I’m still trying to get my meal planning right, but on the weeks I actually follow through with my meal plans I always save money (and eat more healthy).
- EveryDollar – Budgeting software from Dave Ramsey. I’m not currently using this system, but it is amazing – especially for newbies to budgeting.
- Envelope Budgeting System – The envelope system is great for cash spending.
How to Budget:
- Two Unbreakable Rules of Budgeting
- How to Budget If You Have An Irregular Income
- How to Set Up a Percentage-Based Budget
- How to Create a Budget
Money Saving Posts:
- 14 Money Saving Tips to Lower Your Grocery Bill
- 5 ways to Stop Spending Creep from Destroying Your Budget
- How to Cheat Your Clothing Budget and Still Dress in Style
- How to Avoid Busting Your Budget
Favorite Debt Reduction Books:
- The Total Money Makeover by Dave Ramsey
- The Millionaire Next Door by Thomas Stanley and William Danko
- The Richest Man in Babylon by George F. Clason
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