Often times, when we talk about savings, we are talking about leftover money after all of our expenses. In essence, this is a correct definition of savings. In the financial accounting world, Income minus Expenses yields to Profit (essentially what’s left, that can be saved). It’s pretty basic concepts that everyone can understand easily. Even children can understand about savings as early as 5 year olds. (See one of my posts about teaching my kids about money here).
Unfortunately, the concept of savings what’s left causes a lot of financial issues for most Americans. The idea of saving money becomes the last priority because people have to spend money to cover their expenses. Some of these people don’t even have budgets to begin with. They would look at how much they make, and spend within their limit of their take-home pay. OR, to make things worse, they could be spending more than they make and putting themselves in a deep financial hole.
Dont save what is left after spending, spend what is left after savingWarren Buffet
Warren Buffet, one of the greatest investors, says the above famous quote. If you don’t who he is, look him up on Google. I couldn’t agree more with him. It is the most basic profound financial concept that everyone should understand and put it into practice. But, let’s not talk about him in this post. I want to talk about how we should save by changing our mindset to save first before spending. So, how do we do it?
1. Set Automatic Retirement Account Contribution
Yes, retirement accounts are practically savings. It is your savings for your old days when you are no longer in the workforce and no longer getting paychecks. Surprisingly, most people will skip contributing to their own retirement accounts. They don’t like to see the deduction in their paycheck. If you think you can’t afford contributing to 401k account from your employer, try to participating as minimal as possible. Even if you only put $20 from your paycheck, that is a start.
The fact is, those retirement deductions that you see in your paystub are still belongs to you. In my home country, I never knew about 401k and IRAs accounts. In America, we have such program that is meant to protect ourselves from having nothing at retirement. These accounts are “locked down” until you retire. Generally, you can’t withdraw from it until you are 59.5 years old. You are also discouraged with penalties from withdrawing any money from the accounts.
Overall, I think the 401k and IRA accounts are great. Having such “protection”, discipline ourselves to keep the money in the account for the future.
If you have not already, I encourage you to start having your retirement contribution taken out every paycheck. Talk to your employer about this. If they don’t have 401k programs, you can also open your own. Check with brokerage companies such as Fidelity, TD Ameritrade, and others.
Keep in mind, regardless how little you are contributing to the retirement account, you are still saving money. Best of all, you are actually putting some money into retirement savings BEFORE you even get your paycheck in your hands.
2. Take Advantage of Automatic Transfers To Savings Account
If you don’t have a savings account, you should open one. Be sure to pay attention to the terms of the savings account in order to avoid monthly maintenance fees.
Get into the habit of putting aside a certain amount of dollars every paycheck. There are two ways to do this:
- Have your paycheck direct deposit split by your employer. For example, you can set $50 goes to the Savings and the remaining take-home pay goes to your regular checking account.
- If you do not want to do it through your employer, you can set automatic transfer to savings from your online banking yourself. I recommend setting the transfers to happen on paydays. This method allows you to have more flexibility, as you can change the amount at anytime without having anything to do with your employer.
3. Re-assess Your Expenses
Consider cutting back on certain things – especially on the monthly subscriptions. I talked about cutting back on cable tv on another post. If you are in paycheck-to-paycheck situation, consider moving to a cheaper housing. As for groceries, you can try couponing, or buying in bulk to save money.
Re-assessing your expenses should be done at least once a year. Look for things that you can negotiate with. I just save $25 a month by negotiating my internet bill. Obviously, these things can be easily overlooked.
4. Do Side Hustles – get more income
It does not have to something hard and exhausting. Nowadays, driving for Uber is an easy option to get extra income on your own time. You can also start selling unused items on Mercari or Facebook Marketplace. And, if you are crafty with your hands, you can create something unique and sell it online through Etsy.
Do what you think is necessary. Cutting back is obviously the easier way to increase your savings. If you are on a dead-end and there is nothing you can cutback at all, side hustles are great way to increase your income to be put towards savings. Keep in mind, from my experience doing side hustles, I did have to pay a little extra expenses as well. For example, I tried driving for Uber, although I received extra income, I also paid a little more on gas and other car expenses. Keep in mind, savings take time. Set a goal for yourself as motivation.