In the three years since graduation, my net worth has increased $100K(!). I may have started with a negative number in 2014, but that’s no longer the case (because I’m debt free!). This only happened because I put as much money into savings and debt repayment as possible. Saving money is so much easier when you trick yourself into doing it. I have a long way to go before I trim down on all my excess spending, but I’ve gotten where I have today by always making sure that I feel poor.
Trick 1: Bank Automation – Take money out of your checking account before you mentally process that it’s there
I get paid on the 15th and last day of every month. I have multiple Capital One 360 and Wealthfront transfers that kick in the same day that my paycheck enters my checking account. At least 50% of my income gets siphoned away into other accounts immediately. As a result, I’ve trained myself to only expect a $1,000 balance increase instead of $2,000. Although this is a lot to take out at once, I have the flexibility to draw from my savings at any time. However, by having a 2-3 day delay in the transfer of funds, I know to only take money out when I truly need it.
Trick 2: Bank Automation – Use smaller, more frequent deposits to mimic expenses
In addition to the larger transfers that are set on paydays, I have an additional automated transfer that’s set to pull $50 out of my checking account every Friday. It’s so easy for me to spend $50, that when I look at this number, I just think of it as another purchase. I could just as easily set up a $100 semi-monthly or $200 monthly transfer, but I like that this is the sneaky savings strategy that makes one of my savings accounts grow over time.
Trick 3: Paycheck Automation – Reduce the size of your paycheck
Max out your 401K, contribute to an IRA, increase your tax withholding—if you reduce your take-home pay, you’ll have no choice but to get accustomed to living on less. With withholding, I personally prefer to minimize the size of my tax refund. That said, an increased withholding amount is a popular way for some people to save money. If you had the choice between an extra $50 a paycheck or $1,200 more in your tax refund, which would you prefer?
Tips for handling your transition into this new lifestyle:
Account for repeat expenses at the beginning of the month
After paying for rent and dance in the first few days of the month, I’ve gone through 58% of my allotted budget. Having less than half of my budget to cover three weeks of expenses is stressful! I check Mint multiple times a week (more like every day), so I pay close attention to how much I have left to spend. Because I tend to put more into my savings than is realistically feasible, I break my budget… on a regular basis. Yes, this defeats the purpose of a typical budget, but I end up feeling like a big spender, which then motivates me to be even more frugal. (Okay, I’m still working on that last bit.) Why does this work? If I need more money than what is in my checking account, I want to feel the pain of pulling money out of my savings.
Always know the balance of your spending accounts
This is really referring to your checking and credit card accounts. When you sum up the balances, do you have a positive or negative number? If it’s positive, do you have a $100 buffer? $500? Like the envelope system, which gives you a specific cash amount you can spend a month, treat this number as if it’s physical cash sitting in your wallet. If you hit $0, cut your spending off. It takes some time to get used to, but your cash flow is one of the most important numbers to be aware of when you’re making significant changes to your saving habits.
There’s definitely a balance to all of this. Because I spend more than I budget, I tend to stress out more than I probably should over my net cash flow. That said, these tips go a long way with saving towards financial goals. The harder it is to accomplish a goal, the lower your likelihood of success. By using some of these tricks, you reduce the amount of active cash management needed to put away money. What other tricks do you use to save money?