Finance Briefs are a new section here at retirement is possible. They are short posts, generally only 500-600 words, covering a very specific topic. The idea is that you can quickly see a bit of news, find out how to solve a problem, or get a new insight. Let me know what you’d like to see in future Finance Brief posts. To see more Finance Brief posts check out the Finance Briefs Index.
The single biggest reason that people don’t save is that once they spend their money there is nothing left over to save. You get your paycheck. You pay rent. You pay the utilities. You buy your groceries. By the end of the month there is nothing left in your account to save or invest. This is a very common problem with a surprisingly simple yet sometimes scary solution. Pay yourself first.
This may sounds scary since you know that at the end of the month you are out of money. So in theory this sounds like an impossible task. But it’s not. Look at it this way. Before you even get your paycheck taxes are taken out. Social Security, income tax, yadda, yadda, yadda. They’re all taken out before you even see your money. That’s because the government and your employer learned long before you were born that if the money comes out of your paycheck before you get it then you won’t have much of a problem paying your taxes each year. That’s because we get used to living off of the money we receive. For the most part we figure it out.
This is also why you hear about people making millions of dollars then going broke. They got used to spending all of their money when they saw it so they didn’t have any left to pay taxes or loans. This concept works both ways. We as consumers figure out how to spend all the money we make, but we also figure out how to only spend the money we make. Assuming of course you don’t take out debt. If you’ve been reading this site for any length of time you know that I consider debt a bad thing for most people most of the time.
So what do we do? First, pay yourself first. When you get your paycheck put some of it into a savings account. Start off with just a little bit so that you can get used to having less to spend. You’ll notice that after a few months you don’t even really notice those few dollars missing. After you do that put a little more in savings. Keep raising the amount you put into savings each paycheck until you are saving enough to reach your goals.
Sometimes it’s tough to put the money into savings ourselves. Especially when you already have bills that need to be paid. In this case you can do one of two things. You can have your bank automatically pull money out to go to savings whenever you get your paycheck. Talk to your bank about setting up the automatic draft. The other option is to have your employer deposit a part of your paycheck into a separate savings account. Many companies can set this up for you. Just ask your HR department.
The point is that if you pay yourself first then you will be able to save money. You also will get used to living on slightly less money. Start off with a small amount at first. The first time I did this I only put 5 dollars away. That’s all I felt I could afford. But it was a starting point to saving even more.
What kinds of things do you do to help you save more or to make it easier to save?