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.)
Check out this blog post about the 3 scientific reasons why budgets fail.
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.
Find out how we maximize our savings with minimum effort by focusing on our three biggest expenses.
Still want more ideas? Here are more than 100 easy ways for you to save money.
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.
There’s just one rule: don’t touch the second account. If you have an ATM card for this second account, leave it at home.
Need more details about this little saving trick?
Then I recommend The Automatic Millionaire: A Powerful One-Step Plan to Live and Finish Rich by David Bach
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…
Check out:
- 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
Photos: 1. 401(K) 2012 (CC BY-SA 2.0 License); 2. Karl Baron (CC BY 2.0 License); 3. 401(K) 2012 (CC BY-SA 2.0 License); 4. Scott Akerman (CC BY 2.0 License); 5. Amazon
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Excellent advice. I like the separate bank accounts for each paycheck. I also like pay resend first. All great ideas. I have communicated these idea’s with grandson in college. Trying to give him a heads up on saving for the future.
College is a great time to start saving as a habit! Maybe that will help him avoid the temptation of getting expensive toys on credit once he starts working.
I have started this method originally to pay off my “sports car” enough so I can sell it. After I plan to buy a cash car. I only need a car to get me 15 miles to my carpool pickup spot. So far this technique is working however I haven’t considered sending all my potential savings to my second (separate) account.
Mines in another bank which helps keep me from accessing it and transferring funds as easily.
Love your site.
Thanks, Drew. :) Having it in another bank sounds like a great way to do it. I love it when savings accumulate on its own.
I like the idea of saving money through a “don’t look at it” method. My in-laws give us some cash every month because we handle their cell phones through our family plan. For a long time, I’d just put that cash in my wallet and it’d vanish in a few days on groceries or gas or something. Lately, though, I’ve been cramming it into a little box in my sock drawer every month and forgetting about it. I’m not actually sure how much is in there right now, but I’ll probably take it to the bank soon and use it to make an extra payment on my wife’s student loans.
Ah, The Vanishing Cash…I know what you mean all too well. That little box sounds really helpful! I never thought of a separate place to stash cash. Nice idea!
I am a total numbskull when it comes to managing money. Everything about it gives me a headache. Luckily, I’m very comfortable with not spending money I don’t have, so have always been able to save money relatively easily. You have great tips here, but I’m still a big fan of “spend less than you earn”. Of course, I’m not earning anything at the moment, what with long-term travel and all, hence had to come up with a budgeting tool (Trail Wallet) that would at least allow me to keep track of our dwindling savings. Loving your financial updates! Keep it up and good luck!
Well, this is still “spend less than you earn”, actually. In the end, the income covers both expenses and savings. This is just a way to make sure I save as much as I can. In the normal model, you earn, spend, then save the difference. This way, I earn, save, then spend the difference. Same thing, different order.
Great tips! I for one need to see exactly where my money is coming and going, so I like having a budget. I don’t track every single penny, but I have a good idea of what’s going on with my money. I’m all for whatever works for each person and having a plan that’s best for that person’s goals.
I can definitely see the attraction of budgeting, but I just don’t have the discipline to keep up with it. Good to see you having some success with it! Just goes to show that we all have different needs. :)
What an inspiring piece. Where are you living now and where do you plan to go next?
I’ll stick to home exchanging.
Thanks! I’ve just moved to Calgary and will be staying here for quite some time.
We don’t generally spend that much money on travel. In fact, travel is a tiny part of our expenditure because we move to a new city instead, work there and live on work incomes.
You’re retired, so yes, do away with scrimping and saving! :D
Of course, I have home exchanged in Calgary and went to the Stampede. That was during my first few years of home exchanging when I still had children at home. I remember my son really enjoyed the midway (as in almost every night). We both discovered, however that we did not like rodeo and/or chuck wagon races. The show the year we went was Disney themed and we both enjoyed that. The star of the show for us was the mountains. We went whitewater rafting in Golden, BC, as well.
Moving to different cities is certainly a strategy to enable you to really experience regional travel options while you live there. I never thought of a game plan like that. Do you have jobs in tech that are portable?
Retirement makes the whole money issue look different. You just worry about having enough until you drop dead. You still have to be careful–and you do spend a lot more time on doctors appointments. I have to schedule surgeries so that they do not disrupt home exchanges!
If you ever find yourself in the DC area, I would love to show you around (if I am home).
“You just worry about having enough until you drop dead.” > LOL Oh you have a way with words :D We’ve just moved here, so we haven’t had a chance to visit the Stampede yet. I’ve heard great things, though, and look forward to going next year.
Well, my job as a freelance writer is portable, but my husband’s work isn’t. He just looks for a new job whenever we move. I think this works for us because we’re not looking to build careers out of our jobs. Instead, we focus on building our location-independent sources of income.
Thank you for the invite! I’ll definitely get in touch with you if I ever visit DC! :)
I am with you on not keeping track of every penny spent (tried and failed). I do like to keep a spreadsheet of how much I save month on month though. Its good to see the graph go up, and keeps me motivated towards my goal. To each their own!
I don’t know how many times I’ve tried budgeting and failed. That spreadsheet sounds like a great idea, especially if you have a target savings amount in mind!
Deia, great article. Obviously it doesn’t have to be overly complicated once you have our eye on the goal!
Exactly! Nobody really needs more financial clutter. :D