Savers aren’t born, they’re made. Fortunately, there are easy-to-follow steps and financial tools that can make saving money almost effortless.
Just like getting an education or taking an entry-level job, saving is an investment in your future. “What most of us do is we earn $10, then we spend $10 dollars,” says Mark Butler from YouNeedaBudget.com, a personal budget software business. “What we need to do is make sure that some portion of that $10 we’ve earned is spent on our future.”
For example, your expenses may include rent, student loan payments or something fun, like a vacation with friends. Each time you put money into savings, it’s as though you’ve paid for future expenses. Sometimes these future expenses take years of planning, like buying a home. Other times, these expenses will be unexpected, like making car repairs. In Butler’s words, “I have expenses in the future I have to prepare for and they have a right to a percentage of my budget today.”
1. Start small to make big gains
“People tell me, ‘I can’t afford to save,’” says Gail Cunningham, vice president of membership and public relations for the National Foundation for Credit Counseling in Washington, D.C. “I tell them: You can’t afford not to.”
Simply saving $5 per week can really add up. “Gather your family around the proverbial kitchen table,” she says, “and have a discussion to find that $5.” As you look at ways to find that extra $5 or $50 in your budget, focus on the ways that money can benefit you in the future.
It’s also helpful to remember that the idea of saving may be more effective if you funnel money into an actual savings account, rather than placing all your money into a checking account—where it’s always available to spend. For example, if you see $5,000 in your checking account, it may not feel like a big deal if you spring for a $500 purchase. But if you had $2,500 in checking and $2,500 in savings, it might change the way you see that $500 purchase—since you’d only have $2,000 remaining for other expenses.
2. Make it effortless to save money
Sometimes, remembering to save and prioritizing savings is the main obstacle to creating a nice cash cushion. Avoid this hurdle by setting up an automatic transfer for a certain percentage of your paychecks into a savings account. When you commit your money to a savings account, a bank pays you interest on that money. The more you save, the more a bank pays you in interest, and it compounds over time.
Setting up automatic savings often begins by enrolling in direct deposit for your paycheck. With direct deposit, your employer puts your money straight into your savings or checking account. As an added benefit, on payday you have immediate access to your money, eliminating the risk of lost or stolen checks.
If your employer doesn’t offer direct deposit, you could still set up bank checking and savings accounts and deposit your checks in person, or by using your smartphone to make a remote deposit.
Although tools that automate savings can help, it takes time to transition from a mindset of spending to one of saving. Butler says it’s important to approach your goal with a patient mindset, and to continue tweaking your approach to saving as you learn more. “I have yet to know someone who when establishing a budget couldn’t find ways to spend less money but still maintain their real happiness,” Butler says.