5 Rules for Saving

Everyone knows to save, but few do, even fewer know how. While I have not amassed a huge amount, in a relatively short amount of time I was able to pay off inherited debt, knock off $20,000 in student loans, and position myself to be self sustaining with no income for 18 months. Granted immediately after university I lived at home, paying minimal rent for about 15 months, but I still had expenses and a life. Now, my paycheck doesn’t cover one month rent! People must be conditioned to save. This is something over the past year everyone – especially Americans – are trying to do. The question is how we change our savings bulimic mentality.

I have adopted five rules to save.

Set financial milestones

Make yourself a bill

Have spend nothing days

Save your change

Respect that “the price of a vice is self sacrifice”

1) Set financial milestones.

I focus on a ‘magic number.’ For me, this number began at -$10,000. I wanted to only be $10,000 in debt. To get to this point, I had to assess what I had and what I owed. I audited all my assets and debts. In the beginning the assets were small and the debts big, but I needed to know where to start. This was actually my 2005 New Year’s resolution…the only resolution I have ever kept.

I put all of this information into a spreadsheet, a new tab for each checking, savings, and money market account. I added the credit cards and loans to other individual tabs and finally added a totals tab. With this information, I could see in a matter of fact way, exactly what I had and what I owed (less stocks and bonds at first). If you do this, I suggest taking out about $100-$200 and only using that until all credit and debit card transactions are settled.

Once you have aggregated all of your information you can set your own magic number. The most important number is 0. Once you have as much as you owe, you are no longer beholden to anyone financially, except yourself.

2) Make yourself a bill.

You pay the landlord, the cable guy, your cell phone. You pay your credit card, your paper boy and the vet. Why don’t you pay yourself? This is the real means to begin saving. The amount does not matter at first. Get in the habit of taking a specific dollar amount or percentage of your paycheck and putting in into savings. Like any deduction for a retirement account, you begin to function as if you never had the money. Most internet savings banks offer a direct transfer option, use it. Most can be tailored to your pay cycle. Note the difference between bi-weekly and bi-monthly payments. Your will receive 26 paychecks with bi-weekly and 24 paychecks bi-monthly.

I take this rule further. I put 15% of all other deposits into my savings. If I get a $50 birthday check from my grandmother, I put $7.50 away. I think of this as a self imposed tax. These small increments really do add up! I also ‘penalize’ myself for spending. I use my credit card like a debit card to get my cash back reward. Although I pay it off in full every month, I still buy frivolous things. So, at the end of each statement cycle I “charge” myself 2% of the total and put that into savings. This realistically is usually no more than $20 or $30.

3) Have spend nothing days.

This is the simplest rule I have. One or two days a week, do not spend any money. If you need to buy a subway ride or gas, buy it the day before. If you need to go shopping, reevaluate your decision. Bring lunch and walk to work. Make it a habit to not spend anything on one specific day a week. Two is very hard but very doable! I tend not to spend anything on Wednesdays. You will be amazed at how only spending money 6 days a week makes a difference.

4) Save your change.

While this may seem insignificant, change adds up. We all toss pennies away and have no idea what to do with nickels. Put them in a jar and forget them for a while. This becomes an indiscrete vehicle to save. Save your change for a year and once you cash it in, buy something for yourself. This is like found money. You never ascribed any worth to it before, but then you received a $100 bill.

Banks have become difficult with receiving change for conversion or deposit. I suggest bringing your mason jars and empty milk containers to a bank that has a coin counter and does not charge you a percentage. I have found TD Bank (formerly Commerce Bank) to be great. Guess within $1.00 and they used to give you a prize.

5) Respect that “the price of a vice is self sacrifice.”

I am a smoker. Deal with it. I like cigarettes. I know what they are and what they do, but that is my vice. I will even breakdown and buy them in New York City where they are easily $10.00 a pack or more. I know this is seemingly throwing away money, but I enjoy them. Everyone has nights out and general impulses, don’t entirely suppress them. Everyone needs to live and enjoy themselves. If you had a bad day and want to order a pizza, do it! While saving money is a goal, very few of us will have everything that we want over night. If you starve yourself, you will eventually gorge yourself when you break. You work hard and should enjoy what you have made. Don’t go out every night, don’t buy a pack a day (if you smoke a pack a day – find a cheaper place to buy). If you like to watch tv, you can get cable…maybe not the “silver package,” but more than is whatever out there on antennaless television.