I believe that what you do with the money you earn is more important than how much you earn.
A few years ago, when I just graduated from college, Cheesy and I together made a little over $50,000. It wasn’t much, but we managed to save about $20,000 by the end of the year — enough for a down payment on our first property.
The key to accumulating a large pile of savings is no secret: just spend less than you earn. Obviously, we made difficult sacrifices, but deciding to do it and sticking to a simple system made it a lot easier.
You don’t need a budget to save money
Here’s the thing: we both hate budgets and would never be able to stick to one. We wouldn’t even have the patience or discipline to keep track of our expenses. (I tried; didn’t even last one week.)
So we came up with an easy system that didn’t require us to jot down the cost of every single chocolate bar or paperclip we bought. Once we set things up, saving became automatic. We did it without even thinking about it.
So what did we do, exactly?
1. We directed our pays to separate accounts.
Cheesy’s employer automatically transferred his paychecks directly into his bank account every two weeks.
The bulk of my income was from online work, so I received my payments via PayPal. Periodically, I transferred the money from PayPal into a separate savings account.
2. We used the money from the first account to pay all bills.
Every time Cheesy got paid, we used the money to cover any outstanding bills, such as rent, credit cards, phone, health insurance (healthcare isn’t free Canada-wide), etc. This kept us debt-free and meant we didn’t have to pay any late fee or interest.
3. We used the remaining money in the first account for all other expenses.
We considered the money in the first account as all the money we could spend. Whatever was left after the bills were paid was our spending money. This went into groceries, eating out, theaters, snacks, movies, clothes and everything else. Whenever this account was low, we cut down on spending.
We’re both pretty frugal, so we often had months when we had some funds remaining in the first account even after paying all our expenses. We kept any extra money in the first account and left that portion unused. But it would’ve been easier to transfer any remaining funds into the second account to remove any temptation to spend.
4. We never used the money from the second account.
After transferring my money from PayPal to the second bank account, I literally forgot about it. I didn’t check the balance for months sometimes. It was as if the money didn’t exist, except sometimes I did check and was always pleasantly surprised by how much we had accumulated.
That’s all we did; nice and easy. No budgets, no spreadsheets, no elaborate calculations, no keeping track of spending.
The most important step of all
Just because our saving method is simple doesn’t make it easy.
We made a lot of sacrifices: we shared our apartment with a housemate, we took public transport everywhere, we cooked at home on most days, Cheesy packed lunch to work every day, etc.
What kept us going was recognizing why we were doing it and how it would all be worth it in the end. Regardless of the saving method, you need to recognize why you do it. Is it so you’ll get to travel the world? Is it to make sure you’ll have a comfortable retirement? Is it to start a business?
If you would take one minute now to quickly list the reasons why you want to save money, you’ll be more likely to stick with the plan in the years to come. This might seem like a silly exercise, but your own answers might surprise you. When you’re done with that list, put it in your wallet as a reminder in your moments of weakness.
Adapting our saving method to your needs
As you can see, Cheesy and I share our finances and this system would easily work for couples with similar set-ups. But you can easily adapt the system into your situation if you’re single or if you’re a couple with separate finances.
The main thing is to decide how many percent of your pay to save and set up two separate accounts. Designate the first one for all expenses and the second one for savings.
Have your paychecks sent into the first account. Every time you get paid, transfer the savings portion immediately into the second account. You can do this manually each payday or set up an automatic transfer schedule.
You’ll then be left with the first account, which contains all the money you can spend until the next payday.
Need more details about this little saving trick?
I picked up this book at the library one day, intrigued by its huge “New York Times Bestseller” banner. Once I started reading, I realized that, all along, I had been doing something similar to what Bach calls the “Pay Yourself First” system.
The Automatic Millionaire is an easy read; you don’t need to know much about personal finance to understand it. Bach writes in a conversational style and provides lots of real-life examples. He gets into a lot more detail about setting up the bank accounts and deciding on a percentage of your income to save. He also includes some tips on how you can invest all that money you save.
If you try this saving tip and it works for you, please let me know!
If you need more ideas on saving money…
- How to Save Money to Travel the World
- Your 3 Biggest Household Expenses and Why You Should Focus Your Travel Savings on Them
- 15 Easy Five-Minute Fixes to Save Thousands of Dollars This Year
- 100+ Easy Ways to Save Money
- 3 Studies Reveal Why Budgets Fail