How I save

Part of my reasoning behind keeping this blog anonymous (aside from the friends I’ve told — hi, pals!) is that I wanted to get personal about how I money. I want to use this post to get into more detail of what I, specifically, do. I’m using myself as an example because I’m not a financial advisor or anything. I don’t know your finances, and even if I did, I’m not qualified to make a financial plan for your life or your investments. But I know what’s worked for me so far, the financial decisions I’ve been proud of and the ones I haven’t been so proud of. So today I’m going to talk about how I save money.

A few general principles: I try to make saving money as automatic as possible. True story: I am super lazy. I don’t want to be messing with this or that account every day. I don’t want to have to look at my accounts and fire up a spreadsheet and do math in my head every day. Sure, some days I’m in the mood (nerd life!). But some days I just want to hang out with the cats and my husband and do as little as possible. If I’m poring over numbers, I want it to be because I feel like it, and not because I have to.

I also try to get as much tax advantage out of my accounts as I can. Saving money on my taxes means more money for me — hurray! This means I then get to save more and watch that interest and those increases in asset values pile up. This is really the ultimate goal: To have my money do the work so I don’t have to.

And finally, I have a budget and I stick to it. So often we think of budgets as being about spending, but they’re also about *saving.* Knowing what I’m spending lets me know what I’m not spending, i.e., what’s available not for my bills but for me and for my future. It lets me know what money I have that I can put to work for myself, and not just for a new outfit or takeout or whatever.

One big caveat, as well: I fully realize how fortunate I am to be able to save like this. I know not everyone has a steady job, or a salary, or a paycheck that covers their bills and allows anything left over. I’m incredibly grateful for the opportunities that I have. This is also why I’m not describing this as a one-size-fits-all approach so much as simply *my* approach and what works in my particular, individual circumstances.

So here’s how I save:

1. I fully fund my Flexible Savings Account every year. This is a pre-tax account through your health insurer to help you pay for out-of-pocket medical expenses; the limit this year is $2,750. Put simply, this is money that comes out of your paycheck *before* you pay any taxes, which you can then use to pay for any health care costs that your insurance doesn’t cover. For example, I have a $50 co-pay for my glasses; I used pre-tax FSA money to pay for that last year. Note: The downside to this account is that it’s generally use or lose. While some employers let you carry over some of it, for the most part, you *have* to spend it in a calendar year or bye by money. :( That said, there are a lot of things that are eligible, including sunscreen, co-pays, out-of-network expenses, etc.
2. I fully fund my IRA on January 1. I generally save up in December so that once we hit the next calendar year I can dump in the full limit all at once. Personally, I have a Roth IRA, so that means I like investing early in the year to start racking up gains asap. I will get into the kinds of IRA (which stands for individual retirement account) in a future post, but for now the mains points are that this is a self-funded retirement account; there are two kinds, one that gives you tax advantages now, one that gives you tax advantages in the future. I do the one that helps my taxes in the future.
3. I contribute the maximum possible to my 401K (a retirement account tied to my employer) right off the bat. My employer lets me put in a maximum of 50% of my paycheck into my 401K until I hit the IRS limit for contributions each year (this year it’s $19,500). Again, I do this to start racking up investment gains as soon as possible.

If you’re doing the math at home, you can see that I save a LOT at the start of the year… which also means that I reduce my paycheck a LOT at the start of the year. Let me tell you, I live like a little church mouse for those early months of any calendar year. I take advantage of the dreary weather not to go out as much (or at all… hello, pandemic), to stay in, to be a total homebody staying indoors, mending my clothes and cooking. It’s cold and gross outside anyway, so it’s the perfect time for this, plus I know my budget will let me just barely squeeze through. Plus, if I have anything unexpected pop up, I have an emergency fund to help me through until my paycheck recovers later in the year.

4. Everything else. Yes, this is a giant catchall — but if I’ve done steps 1–3 right, that means a HUGE chunk of my savings for the year gets done before I have to think about any of it. At this point what’s left is anything that hasn’t already been either saved previously or whatever has been set aside through my budgeting process. And so I don’t actually have to do any counting or math or calculating unless I want to (to be fair, I do actually love doing all that stuff… hence this blog).

I’ll write more in the future about what I actually *do* with these funds, i.e., how I invest. But for now, this is a look into the way I set money aside for my bigger goals.