The only way to save money that actually works

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