Now, $1,000 might not be your number, but that’s not really the point. The point is that if you are able to put away $100, $500 or $1,000 every month, then you should try to stash away 2X that instead. I want to share with you how I increased my monthly savings contributions from $2,000 every month to almost $3,000 every month.
When you get your paycheck what is the first thing you do? Pay your rent, mortgage, or car payment? Go out for drinks or treat yourself? Or do you first move 50% of your paycheck into savings?
The concept of paying yourself first is something I first heard in Rich Dad Poor Dad and then later in The Richest Man in Babylon. Most people don’t pay themselves first. Instead of immediately paying off expenses, and trying to save what’s left over, do the opposite. Pay yourself (your savings account or other assets) first, then do what need to do in order to live off the remainder. This forces you to make smart, conscious decisions with every purchase you make.
I do this by setting up automatic withdrawals from my checking account. No matter what, every week, $500 is withdrawn from the checking account and deposited into my Acorns and Robinhood accounts. Sometimes this doesn’t line up exactly with my pay period, but that’s ok. If there is only $400 in my checking account and I don’t get paid until the end of the week, the $500 is still taken out, and my overdraft protection kicks in and $100 is automatically transferred from my emergency savings to cover the difference. Then when I get paid, I make sure to replenish the $100 in my emergency account and figure out how to spend $100 less next month.
I love my Acorns investment account. It offers a feature called “Round-Ups” that taught me the mindset: “If I can afford to spend, I can afford to save.” With Acorns, you can link your various Debit and Credit Cards to your account, and Acorns automatically invests the change from your daily purchases. This is the electronic equivalent of paying for something in cash, and putting the change you get back into your piggy bank.
For example, let’s say the coffee you get on the way to work every morning costs $4.35. When you pay with a card that is linked to your Acorns account, Acorns will withdraw $0.65 from your funding account.
I take it a bit further and opt-in to the 10X Round-Up Multiplier feature, investing $6.50 instead of $0.65. Doing this month over month has trained my brain to think of things as being more expensive than they really are, and discourages me from making dozens of meaningless tiny purchases, while also forcing me to contribute hundreds of dollars a month when I spend money on little things I don’t want to give up, like my daily almond milk latte.
This section is not so much about saving more as it is about protecting your savings from yourself. I’m not saying that you should take all of your cash and put it into stocks or bonds. You should definitely have a cash emergency fund of $2,000 – $5,000 (per member of your family) to cover any unexpected expenses that might come up. For me, $5000 is the most cash I want on hand at any given time. It is key that you separate your emergency cash from your savings.
I invest my remaining cash with Robinhood, a commission-free stock trading app, and Acorns, a low-fee, managed investment fund. These types of assets are considered to be semi-liquid. This means that the assets can be converted into cash within a couple of days. I get 5-8% returns with these accounts. But only two things really matter to me here:
By keeping my savings in semi-liquid assets I am less tempted to transfer a hundred bucks here and there to cover meaningless expenses. If an unexpected expense does come up, I can utilize my emergency cash and use credit cards to cover the remaining expense. Then I can sell off some stocks and pay off my credit card balance interest free a couple days later.
Benchmark Budgeting (please correct me if there is a more appropriate term) is a term I use to describe how I monitor and decrease my monthly expenses by committing to spending a little less in a handful of expense categories.
I don’t create a typical budget by sitting down, calculating expenses and trying to force everything into rigid boxes. This has never worked for me. Instead, I retrospect on my spending habits on a weekly and monthly basis using Personal Capital and ask questions that help me set reasonable goals. Then I commit to those goals like:
I don’t meet every goal I set. Not every change I try to make saves a lot of money. But, by setting spending goals based on the previous month’s expenses, month by month I am slowly reducing my monthly expenses and developing better cooking and entertainment habits that will save me thousands over the next 10 years.