Make Room for More Savings
Want to know the most important, most brilliant financial tip that exists in
the world today? Spend less than you make.
If you automate those rainy-day savings (also a good strategy for long-term
savings such as your IRA), you spend less than you make without having to
think about it.
Suppose you determine that you want to amass a $7,500 nest egg (three
months of expenses at $2,500 per month). At 3 percent interest, saving $200
per month will allow you to reach your $7,500 goal in three years.
Perhaps you’re still insisting that there’s simply no room in your budget for
savings. Well, sometimes you just have to eat those Brussels sprouts. Take a
look at what you’re spending on things that aren’t absolutely essential, that
don’t match your life goals, or that don’t give your life pleasure. Keep track
of your spending for several weeks. Carry a little log book in your pocket and
write down everything you spend. After several weeks, take out the log book
and your regular monthly bills. Look at where your money has been going.
(It’s helpful when doing this exercise to have a glass of wine or your favorite
mug of tea by your side.)
What to ponder:
- Do you need a landline phone and a cellphone?
- Do you need to buy books or is the library a better choice?/
- Do you shop in bulk and waste half of what you buy when buying
smaller quantities of just what you need would be more cost-effective?
(Buying less can be helpful to the waistline, too.)
- Can you host a potluck with friends instead of meeting them at a restaurant?
- Can you (heaven forbid) make your own coffee at home?
- Could you live in a modest home?
- Could you buy a gently-used car rather than the latest new model?
- Do you have subscriptions to magazines you never read or health club
memberships you never use?
The idea here is not to feel deprived, but rather to make conscious spending
decisions. Looking closely at where you’re spending your money can help you
make decisions about where to cut so that you can free up those savings for
the emergency fund without feeling bereft.
Hey, you may find that the joy of watching your savings grow far exceeds the
momentary pleasure of an impulse purchase.
If you need a little boost, here’s one to try. The next time you pay something
off, whether it’s a small credit card balance or a car payment, continue
making the payment. Only now, make the payment to that rainy-day account.
You likely won’t notice anything other than the size of the pay-yourself-first
account increasing.
To further inspire yourself, post a bar graph of your goal on your refrigerator.
Mark your progress on it so you can congratulate yourself every day.
