Today, we have a guest post from one of my friends who is focused on making his money work for him, rather than working for his money. Enjoy! -Lee. Please note this post contains affiliate links where we receive compensation.
These 3 simple things were life changing for me. I went from living week to week, bound to a job I wasn’t passionate about, and, while on paper I made enough money, I could never seem to get ahead. It would seem the reason many people don’t save isn’t because they don’t make enough money, it’s because they make poor choices with the money they do have. If you’re ever said this: “I’ll save more money when I make more,” you know that doesn’t work.
In This Post
Good practices start now!
Good practices start now, then you capitalize on them when your income increases. If you wait until your income increases to save, you will find excuses to inflate your lifestyle (ie: a new car, upgraded cell phone, new clothes) to match your new pay, instead of you having more money left over. Let’s start good habits now!
These 3 simple steps can change your mentality, and will absolutely change your account balances.
Three simple steps
1. If you don’t know where you are, you can’t get where you’re going.
Tracking your money is the first thing all people should do. You should account for all your income, expenses, and what’s leftover each month. (In business terms, this is called an income statement). If you were running a business this wouldn’t be a tip, this would be an absolute necessity.
There are many different ways to do this, and even a basic spreadsheet is enough to get started. Mint is a popular personal finance website and app that helps people track their money. (Note from Lee: I use Personal Capital. It is free and connects with every major bank and investment company.)
Become obsessed with your income statement, money that is paid attention to, stays around longer.
2. Think of your future self.
One of the oldest finance sayings I know of is “pay yourself first” and while it’s kind of cheesy to say, the effect is tried and true.
So you read the first tip and you’ll be tracking all your income now right? Ok, well anytime you get income, take 20% (or any amount you choose, I say 20% to start) off the top and put it in a savings account. Then, figure out how to pay your bills and live off the rest.
The problem many people make is that they try to save what’s leftover at the end of the month. We all have tried this and we all know it doesn’t work. You see some money at the end of the month and you decide to treat yourself instead. Don’t! Save first!
Commit to making your future-self prosperous first, then figure out how to get current self through the month. If this sounds like it would be unpleasant, or you don’t think you have 20% worth of room to sacrifice, I encourage you to TRY it. In my experience, I’ve found that many people are spending 20% or more on things they don’t even remember buying or why they thought it was necessary.
Commit to this action, and you’ll find it much more rewarding than tedious.
3. Get a savings account that is hard to access.
Another common trend of people trying to save money is this little game where we put money in our savings account, at the same bank where our checking account is, but then we feel like spending it. It is way too easy to get on the phone or online banking to transfer it to checking and drain the account.
This is not good, and I know that many people do this way too often. The solution I used was quite easy, and extremely effective.
Go to www.bankrate.com and find savings accounts with high interest rates and low fees. Ally is a popular one that has offered a 1% rate with no fees and no minimums for quite a while. (Note from Lee – I use Capital One 360 for my savings’ accounts because they are no-fee, no-minimum accounts and you can set up several accounts under one log-in, so there is a separate account for each goal or bill you are saving for.)
Whichever account you decide, open a savings account, link it to your main checking account and get to saving. The reason this works is that you will no longer be in a position to impulse spend this money. You definitely don’t want a debit card for the account, and it’ll take 2-3 business days to transfer funds out. If a true emergency does occur, your money isn’t tied up. However, if you suddenly decide to irresponsibly spend $400 at Bed Bath and Beyond, your newfound good habits will protect you from yourself.
Conclusion
These 3 simple steps really work well together as a whole, not as well as parts. On your next payday, break out your Excel worksheet (or whatever app you’re using to track your money), enter your income and send 20% (or whatever savings’ rate you’ve decided) to your online savings account. Pay your bills and live off the rest.
At the end of the month, if there is still money left over, then you can spend that money however you like without any guilt. You’ve already hit your target savings goal and what’s left you won’t feel bad about spending!
If you can commit to applying these 3 simple steps, you will find it so rewarding to finally see your savings account grow. And that will be a much better feeling than whatever temporary pleasure you might have received from spending your hard-earned income on things you don’t really need.
These three tips are very good.
I have my savings account at the same bank so it makes it easy to move money to cover things. I have a Capital One account also. I think they changed the name from 360 now to something else? But I should use that instead. Thanks for the suggestion.
You’re welcome. I like having dedicated accounts to each bill. To me, it’s better writing a bunch of small checks over the course of a year, rather than having to come up with a big chunk all of a sudden. It also helps keep “lifestyle inflation” in check… you don’t spend the “extra” money, then scramble to figure out where the money for that bill is going to come from.