How to Start Saving a Little When You Don't Earn a Lot
Whether by our parents, grandparents, teachers or older siblings, we’ve all been lectured on the importance of saving money. But we’re hardly warned about how difficult a task it can actually be.
Nevertheless, it’s a skill you'll eventually need in order to make those big, important purchases, like a house or a car, and create a financial safety net for the future.
If spending your paycheck as soon as you get it is your typical M.O., there are ways to ease into the process of saving money that don’t feel like huge adjustments.
Think about saving money like cutting down on fast food or reducing the time you spend watching TV or on your cellphone. It’s better to start gradually by integrating simple habits into your daily life. Cutting all unnecessary spending cold turkey can be harder to sustain.
Budgeting for beginners
Everyone needs a budget no matter how much money you make and how much you plan to save each month.
Looking at your bank account can bring discomfort and stress to some, especially if there’s not a lot in it. But it’s better to know the exact numbers than assume and overspend.
“There's no way to cut down on spending without looking at how you're spending your money,” said Alexandra Maya, a bookkeeper with Federal Hill Income Tax, a financial planning and accounting firm in Baltimore.
The first step to making a budget is to subtract your bills from your paycheck, Maya said. Then determine how much of what's leftover you can save and how much you can spend.
“I give myself a range of what I can spend on groceries,” Maya said. “And whatever I have left is what I can spend on anything (or save).
"When I'm really trying to save, I put a percentage of that leftover into my savings account. Or if I'm looking to make a big purchase, I deduct the partial or full amount from my spending for that pay period.”
Baby steps are fine
Not everyone can afford to tuck away $50 or $100 from every paycheck. Maya said that setting aside single-digit amounts can still make a difference. Putting those small chunks in a savings account can help keep it out of sight and out of mind.
“Sure, it takes a while for it to add up, but that's the point of saving money.” she said. “Five dollars or $10 here and there, that are set aside, add up.”
There’s a lot of fascination around the ways millennials are choosing to spend their money in the age of Uber, PostMates and other consumer apps.
According to a 2018 study by LendEDU, nearly half of Americans between the ages of 22 and 37 spend more money eating out than they put away for retirement each month. And more than a quarter put more toward coffee than their retirement.
“As a bookkeeper, the biggest spending I see on the books is eating out,” Maya said.
But eating out can feel like two treats for the price of one.
“I understand that in this working world, cooking can be a drag, and ordering out is that much quicker.” Maya said. “Plus, it's a great way to catch up with friends. It's easy to see why eating out is the most frivolous way we spend our money.”
Be a mindful spender
Before you make those dinner plans or check out on Amazon, think it through. Is it really a good idea right now? Sometimes, the answer is absolutely "yes."
“What I try to do is justify the spending,” Maya said.”How many times have you eaten out this week? Do you really need new shoes, or are they just cute? Can you find these cheaper somewhere else?”
I’m a college student, and I fell into a morning routine that included a trip to Dunkin Donuts before my first class. I got so used to having a coffee, a donut or a breakfast sandwich every school day that I would stop by Dunkin Donuts even when I wasn’t in the mood for their food.
When I started checking my bank account more, I realized how much it was skimming from my paycheck.
I thought about non-foods items that I could buy with that money, like clothes, books or jewelry, and reduced my Dunkin runs to twice a week. Now, I’m rarely in the mood for it.
“Saving and spending money is that immediate versus delayed gratification,” Maya said. “In the long run, saving money is going to be better financially. But then again, a burger sounds great for dinner tonight. It's all about how you look at it from a bigger perspective.”