CNN recently reported that more than three-quarters of Americans are living paycheck to paycheck (survey done by Bankrate). I’ll admit – we live paycheck to paycheck, but it’s not because we’re broke. We save every month, have a huge cushion and are working towards having a solid down payment on a house.
What’s surprising, though, is that 50 percent of those surveyed have less than three months of living expenses saved up and 27 percent don’t have any savings at all. What were to happen if one of these people were to lose a job? This is one of the huge reasons why I recommend freelancing, no matter what industry you work in (if you want to read more on that, check out my latest post on become a freelance writer!).
In light of this article, I wanted to talk a little bit about saving money. I think a lot of people pay their bills, spend their money and then cross their fingers and hope there is just magically money leftover at the end of the month. In my experience, I’ve learned that this is never the case. Our car insurance, for example, has gone down by about $20 a month over the past year. Not much, but I can guarantee you I never have an “extra” $20 bucks in my account at the end of the month. Our gas bill has also gone from $200 in Jan and Feb to $62 in March. Did we have an extra $140 in our account? Nope.
Saving does not happen automatically (well, unless you automate your savings). We are human and we are tempted daily to spend money. One of the reasons that my husband and I rarely use credit cards is because we always spend more than if we were to use our debit card. We keep $100-$200 in our checking account and when it’s gone, it’s gone. This strategy has helped us budget our money, get our spending under control and save as much money as we possibly can every month. Will we always live like this? Probably to some extent, yes. I don’t feel deprived at all and it feels good to save money!
How to save money the easy way
I mentioned before that most people pay their bills, spend their money and then save anything that’s leftover at the end of the month. To save money, and a lot of it, you have to prioritize saving. We pay our bills in advance, then save the difference that will leave us $100-$200 in checking. What dictates how much we leave in checking is what we need to purchase until our next check comes in (we’re self-employed, so while we never know “for sure” when money will come in, we always have a general idea). So, for example, if we need to buy diapers for our daughters that week, we’ll leave a $200 cushion since diapers cost $60.
The next time you get paid, pay your bills. If you can, pay a bill or two ahead of time. Then, determine the minimum amount of money you need to live off of. Think about groceries you’ll need to buy, any upcoming parties you’re attending, if you need gas for your car, etc. Slightly underestimate this number so you’re forced to find ways to cut back. Then, transfer the difference into savings. If you run out of money before your next pay day, you’ll have to find a way to get by. We’ve had days where we have $10 in our account and we make it work. We eat food we already have, we hang out at home and we go on walks and to parks. We still have fun even though we aren’t spending money. This method is what has allowed us to save roughly $1,000 each month, and hopefully growing!
But what if you are living on a bare bones budget…
So what if you pay your bills and only have a little bit leftover to live on? That’s understandable, but I would guess you could save something, even $10! Start with that. It’s better to start slowly and get yourself into the habit of saving than it is to just not save at all. On your next payday, save $15. Most likely after a month or so goes by, you’ll be looking for ways to trim your budget so you can save more money.
You see, when you save money, you don’t just have a pile of cash sitting in the bank, you have options. You can purchase a rental property, invest your money in an index fund, be prepared for emergencies or eventually retire early and start a career doing what you love. We don’t save money just to save it, we save because we want freedom.
How do you save money? Do you automate your savings, save what’s left at the end of the month or carefully budget your expenses and save the rest?
photo credit: Flickr via 401kcalculator.org
Abigail @ipickuppennies saysat
About a year and a half ago, I started saving my savings. I realized that the $92 we “saved” by switching to Hulu was going to get sucked up on little things. So now I put $92 a month into a Saved Savings account. Same thing when I use a coupon, GCs from rewards programs or otherwise get a deal. Assuming we’re not on the last few dollars for the week, I transfer the money over.
It’s a great way to know that your frugal hacks are actually building up your savings account.
diane @smartmoneysimplelife saysat
That is an excellent tip!
diane @smartmoneysimplelife saysat
That’s a great way to make sure you save when you’re not on a fixed income, too.
Jayleen Zotti saysat
This is an area we need to improve. Ten percent comes off the top automatically and goes to our 403b. We need to have additional savings though and hope to get there soon!
Sounds like the pay yourself principle, which is definitely the most effective way.. The part where I struggle is then sticking to the budget haha :)!
Btw there’s someone I’d be interested in connecting you with, who could help you increase some income… If you’d like let me know and I’ll put you two in touch.. He’s an aspiring author who has published a few Ebooks on Amazon
Melissa @ Sunburnt Saver saysat
I love that you mention “even $10 is enough to start saving”! That’s so true. I wonder if a lot of people just think, “oh, $10 is nothing. I can’t save.” It’s not nothing! It’s a start and, if you’re motivated, you can increase it from $10 in month one, $20 in month 2, etc. It’s just a mindset you have to put yourself in.
Personally, I do a zero-based budget. I always have $0 in my account at the end of the month (the end of the month meaning the day before my first month’s paycheck… if that makes sense?) because, at the end of the month, whatever I have left over goes into savings.
Yes, I know it’s not paying myself first. I generally am able to save a few hundred a month, which is why I’m comfortable not paying myself first. I’ve been budgeting for so long, I mostly keep a running total of things in my head. When I know I’m getting “low” in savings, I get really aggressive at saying “no” to everything – no lunches, no extra things in the grocery cart, no “let’s go get ice cream” runs. It’s ruthless, but that’s how I roll! 😉
We’re also self-employed so we pay ourselves a monthly salary based on our zero-sum budget. The extra money we make each month builds up in our business accounts over time, and I occasionally move it into different investments or accounts. So basically, we save by only putting what we really need in checking each month.
Christina @ Embracing Simple saysat
I love that you mention even $10 is a good place to start when it comes to saving. So true! We have been much better about putting money into our savings account each month at the beginning of the month, so that we making saving a priority rather than an afterthought. It works well for us because then it’s untouched money that we don’t even give ourselves the option of spending.