Saving Money is Hard
But you can do it
Let’s face it, saving money is hard. It’s the elusive goal we all talk about starting January 1st but when December 31st rolls around, we always find some reason to justify why this just wasn’t our year. It’s not easy socking away money every week or every month especially when you feel like life is kicking your ass 24/7. I know I felt like this. In my final two years of college, I remember working two jobs to pay for those way-too-expensive textbooks, groceries, and other life expenses. I tried to convince myself that I should save the remainder of my income for the eventual student loan payments that would soon consume my bank account. Rather than do the smart thing and save, I convinced myself that I deserved to spend some hard-earned cash on… let’s call them “recreational activities”. Looking back on it, I don’t necessarily regret the experiences, but I definitely identified areas I could have cut back and still maintained the same level of enjoyment in life.
What I realized about the “save money” goal is that it is horrendously vague; it’s much too open to interpretation. Everyone has a different relationship with money, so it’s crucial to ask yourself these questions,
“Why am I saving money?”
“How am I going to do it?”
Let’s take a look at a few of the steps that you can take today to get started on answering the above questions.
Tracking Your Spending
For those of us who are just starting out in the working world, finally seeing that comma in your bank account can be exhilarating. For many, that comma represents the kind of stability some of wish we had growing up. Unfortunately, it’s all too easy to squander that new fortune especially when so many of our transactions happen with debt and credit cards. Using those cards create a metaphorical barrier between our spending habits and the reality of our bank accounts. This is why tracking your spending can help tremendously. In today’s digital age there various tools available to easily track your spending right from your phone!
Free apps like Mint and Personal Capital are a great way to get started. You can safely sync your checking/savings accounts as well as your credit cards after signing up. These apps will help you visualize your spending and you will be more conscious about swiping your card. Try these apps for a week, or longer if you like them! If you’re like me and like to use spreadsheets, you can use Microsoft Excel or Google Sheets to create your own spending tracker. Here’s a quick example for some inspiration if you decide to use a spreadsheet:
Identify Needs and Wants
One of the basic tenets of personal finance is identifying your needs and your wants. Needs are items that are required to survive. This includes essential groceries, shelter, utilities, and even your debt payments. Wants are your nice-to-have’s. These include some of your “fun” expenses, like your subscription services, other entertainment, and those extra bottles of wine you bought because “there was a sale”. After tracking your expenses, you can take a look at your spending and see what percentage have been needs and wants. In theory, your needs should be a large chunk of your spending. If they’re not, don’t freak out! This is an opportunity to identify areas where you can cut back on wants. Tracking your spending has hopefully made you more conscious of how you are spending, which will in turn help you develop your priorities and instill some self-discipline!
Give Each Account a Reason to Exist
Essentially, your bank accounts should serve some purpose in your financial life. Giving your bank accounts a reason to exist can help you organize your financial life better. There are several types of accounts that exist, whether it be a checking account, savings account, money market account, or investment account. Using your checking account as the “nucleus” of your finances can be a very effective strategy. You can use your checking account acts as a “rest stop” for your money before each dollar is transferred over to where it need it to be. For example, all your needs can be paid through this checking account. After identifying your needs and wants, you now know how much of your income needs to stay in your checking account. This money has been designated to pay your “needs”. It’s also a good idea to keep a buffer amount that you are comfortable with for some of your short-term “wants” as well as any other minor necessary expenses that inevitably come up. By adding these numbers up, you have identified the amount to keep in your checking. All remaining dollars should be split among the accounts that you do not need to use on a daily basis, like your savings or investment accounts. Dong this will help you reach the saving goals that you’ve set for yourself to buy those loftier “wants”. Let’s take a look at how to fund these savings accounts without the headache of constantly logging into your accounts and manually funding them.
Automate Your Savings
Consciously logging into your bank account to move money from your checking to your savings can be a challenge psychologically because it feels like you now have less money to spend. When I started my first internship, I struggled with this. Once that direct deposit hit my account, I felt invincible; I felt as though I could afford anything I wanted. Whether I needed to buy those things or not was beside the point. In hindsight, that probably wasn’t the smartest mindset for a minimum wage summer job. By the end of that summer internship, I was in more or less the same financial shape as I was at the start. I found myself discouraged and confused at how so much money had “magically” disappeared from my checking account. It didn’t take long after that before I realized how much of an imbecile I was.
I wish I could have explained to my eighteen year-old self was the power automating my savings. Automating your savings can be a game-changer. If the psychological challenge of committing yourself to putting aside money is too much for you, then automating your savings eliminates the difficulty. Virtually every bank has an online/mobile banking feature. After logging in, you can create recurring automatic transfers from one account to another at whatever frequency you’d like (daily, weekly, bi-weekly, bi-monthly, etc.).
If you receive a direct deposit from your internship/job, you can take automatic transfers one step further. Reach out to your HR/Payroll department and confirm if you can break up your direct deposit across more than one bank account. If you have a savings/investment account, this can allow you to fund it effortlessly!
Don’t Compare Yourself to Others
Don’t be discouraged by other people and their saving habits. They’re in different situations than you. Some people might save more because they live with their parents, some might just have a higher income than you. Not everybody is afforded with the luxury of stability, but that doesn’t mean that you can’t do anything for yourself right now to change that. You don’t need to save a thousand dollars a month to become rich. It is far more important and valuable to instill the right financial mindset. Doing this is an investment in yourself. Go at your own pace. That way, you can control the outcome. Remember, personal finance is personal. It’s about YOU.
This is a story from Runway Finance, a blog that explains financial concepts from a practical, approachable, and helpful lens. Thanks for reading!
