“Save money? Are you kidding! I have no spare money to put away.” How many times have you said or heard that complaint? Well, today’s your lucky day! Here’s a way to save money…money that you don’t yet have.
Most experts agree that having a budget or spending plan provides the basis for financial success. And a key ingredient in that plan is savings. Conversely, most real people think most experts live in an alternative reality where money magically appears. But all kidding aside I have had a lot of success building my savings with money I didn’t yet have. Here’s how:
1. Open a bank or investment savings account with the least amount of money they’ll allow. For a bank or credit union that might be as little as $5. For a cash management account at an investment firm, like Fidelity, there may be no minimum at all. Let’s call this your Magic Money Account.
2. Have your employer’s payroll department arrange to send a fixed dollar amount sufficient to cover your current household expenses and fun money to your existing checking account. I’ll call this account your Household Account. An added plus is that you can use an online bill payment feature to eliminate the possibility of late charges for checks held up in the mail and even save on postage! Keep funding your 401K as you always do with a fixed dollar amount as well, but direct that a small sum ($1 to $5) be added to the new savings account you set up in step 1.
3. Instruct payroll that any money left over after funding your Household Account and making your 401K contribution (and any other deductions you may have) be sent to the new Magic Money Account you set up in step one. Now sit back and watch the magic of invisible money start to accumulate!
The next time you get a raise or bonus, instruct the payroll people to put half of your new increase into your Household Account. The remainder will automatically flow into your Magic Savings Account. Since this is money you haven’t been relying on, there will be no hit to your spending. In fact you’ll still be getting a raise from the half of your increase that goes into your Household Account. The magic is that your savings will grow with money you didn’t have before, never counted on and won’t be missed. If you’re a procrastinator, like me, you may not get around to redirecting your raise for a while, resulting in even more going to savings.
Using direct deposit to put money away from every paycheck makes saving painless no matter where you stash your cash. Starting small is fine. Even if it’s only $5 a paycheck, you’ll be surprised how your stress level will drop by having started a savings ritual not to mention having some cash available for an emergency or unexpected opportunity. Your confidence and financial health will grow as you see savings where there were none before. Soon you’ll have enough saved to handle a small financial emergency or opportunity. It can be hard to distinguish between and emergency and an opportunity. How can you tell an emergency from an opportunity? Simply put, if you can eat it, drink it or wear it, it’s not an emergency!