Americans aren’t great at saving. In an oft-cited statistic, almost half of Americans (46 percent) report that they wouldn’t be able to handle an unexpected $400 expense and would have to go into debt to pay it. Another 21 percent reported that they’d deal with three months of unemployment by borrowing from friends, selling assets, or taking out payday loans.
At Money Under 30, we feel that the emergency fund is the bedrock of financial security. It allows you to weather unexpected hardships without raiding your retirement funds or other investments, which means you don’t miss out on gains or pay unnecessary fees. It gives you a sense of comfort and confidence that you can face any challenge.
All that said, saving is hard. It requires you to fight against cultural conditioning (in the form of ads, TV, and your friends on Facebook) that tells you you should spend, spend, spend, and acquire all that you can. It requires you to forgo immediate pleasures for the sake of far-off calamities.
We all know we should be saving—people regularly list it as one of their top financial resolutions each year—and yet so many of us don’t. There’s a reason for that.
Here’s how to start saving—by first acknowledging why it’s hard.
Why it’s so hard to start saving
When you first start putting away money, it can feel so insubstantial as to be meaningless. You’ve got, what? Fifty bucks in your brand-new savings account? It’s a start, but it’s far from where you want to be. Your goals and dreams can seem so far away as be unreachable.
By saving rather than spending that money, you’re also giving up something. It can feel like an unfair trade. After all, that $50 in your savings account won’t help all that much if you’re suddenly hit with a $500 expense; it’s also not gonna get you to Vegas for your buddy’s bachelor party. (Unless you already live in Vegas.) And, by tucking it away in your savings account, you’re not getting the sweater/video game/daily frappuccino that you would have normally spent that $50 on.
It’s easy to weigh the pros and cons, say “screw it,” and take that money and buy what you want, enjoy the immediate gratification, and then later beat yourself up for not having the willpower to save. And to do it all again with your next savings attempt. Lather, rinse, repeat.
Soon enough, you’ve resigned yourself to a life as a non-saver, living paycheck to paycheck, frittering away the future on a few frivolous pleasures.
But it doesn’t have to be this way. With a few tricks, and the right mindset, you can start building up cash reserves that’ll help you weather any storm.
1. Keep your savings out of sight
The absolute first thing to do is set up an external saving account. You need to put up some barriers between you and your reserve cash.
If you just transfer money to a savings account at the same bank where you have your checking account, then it’s too easy to transfer it back and spend it. (At my bank, it’s literally instantaneous.) The separation between a checking and a savings account at the same bank is practically nil.
An account at a different bank erects hoops you’ll have to jump through if you want to spend your savings. And, if you’re anything like me, that effort will be too much, and you’ll opt to keep your money where it is and not buy whatever shiny toy has caught your fancy. As an added bonus, you’ll avoid buyer’s remorse.
A separate high-yield savings account can also offer you significantly better interest than your run-of-the-mill savings account. That interest is still likely to be a piddling 1 percent, but as your balance grows, so will the interest you get, which can be a motivator in its own way. (Free money is free money, even if it’s $2 a month.)
2. Focus on the process rather than the ultimate goal
This, of course, is the opposite of what most personal finance blogs say to do. They’re all about final goals! If you’re saving for a vacation, they tell you to put a picture of a sandy beach in your wallet, or to imagine the surf tickling your feet whenever you want to spend money on a mindless purchase. Visualize what you want, the theory goes, and your will won’t fail you.
And that probably works great for saving for fun stuff. Concrete stuff. Things like access to sandy beaches or a bright new iPhone. But it works less well for what might be the most important savings goal of all: Your emergency fund. I guess you could put images of scary car accidents or large medical bills into your wallet, but that’s no way to live.
Instead focus on the process, on simply doing the thing that needs to be done, and reward yourself (in some small way) for keeping up with it. Perhaps tell yourself that you’ll only do it for a certain amount of time, like three months. Then the sacrifice won’t feel so great, the commitment less permanent. By the time the three months are up, you’ll be in a groove and won’t want to stop.
3. Don’t set yourself up to fail
Where most of us go astray when it comes to resolutions—whether financial, professional, or otherwise—is by setting goals so lofty they might as well be impossible.
For instance, if you decide you want to lose 50 pounds in the next year, you’re going to feel crappy if exercising and not eating delicious cake doesn’t yield results immediately. You might even be tempted to quit. (After all, you gave up cake and have gotten nothing for it!) But a lack of major results doesn’t mean you’re failing—after all, there are so many factors that go into weight gain or loss—not just exercise and diet, but genetics and other things outside your control.
Instead, if you say you want to bike to work three days a week and eat a salad for lunch every Friday, then that’s a lot more manageable. It’s specific, but allows for some wiggle room. (Some days it rains, after all.) And exercising, whether for weight loss or other goals, usually makes you feel better. You’ll feel good and you won’t get frustrated when you don’t immediately drop three inches from your waist, because that’s not what you set out to do. You focused on process, not results. The means, not the ends.
The same goes for money goals. If you say you want to save $10,000 in the next year, you may find yourself frustrated by slow progress or an unexpected setback, and just give up. But if you just say you want to save X amount each paycheck, then you’re going to be more likely to succeed.
And that success will give you motivation and momentum to keep going, so that you’ll be more likely to hit that lofty original goal. If you bike to work, it’s possible you’ll start shedding fat, gaining muscle, and feeling more energetic. If you put $100 aside every paycheck, soon you’ll have a substantial sum.
4. Take advantages of windfalls to help build savings momentum
Nothing gets you more stoked about savings than seeing your balance go up—way up.
If you’re putting away $50 a paycheck, it’s gonna take a little while to build up some serious cash. (And that’s okay!) However, if you find yourself with a nice year-end bonus, or an unexpectedly large tax refund, or even some birthday money from Mom and Dad, you can make major progress in no time at all.
Your first instinct, of course, is to spend that money, guilt-free. And that’s one option. But by putting that money (or most of it, anyway) into savings, you’re getting closer to that moment when you’ve saved up enough that you feel invested, when you no longer look at your balance as some piddling nothing, but rather as something to be protected and cultivated. (If there’s one thing that regular savings teaches you, it’s that it takes a long time to save up a substantial sum, and no time at all to spend it.)
Once you hit that place, then saving becomes a lot easier. It stops being drudgery, and starts being something you want to do. You experience, for maybe the first time, what financial security feels like. And it feels good, so you’ll want to get more of it.
5. Get a side hustle
I know, I know. We’re always talking about side hustles around here. But there’s a good reason for that.
It can feel truly empowering to get paid for something outside your biweekly paycheck—especially if you’re trapped in a dead-end job or something you’re not passionate about. And since your budget is based on expected income (for us wage-slave drones, at least), that money (minus self-employment taxes) can go to anything you want, including your savings. It’s all gain, baby!
I made major strides in my savings goals over the last year by putting almost all my freelance money towards my emergency fund. Because of this, I’m likely to get it fully funded more than a year earlier than I would have if I had just been making my regular deposits from my biweekly paycheck.
Making those extra deposits—and seeing my balance go up by leaps and bounds, rather than dribs and drabs—makes me more motivated to save, and more motivated to seek out new freelance projects.
These actions—whether setting up regular deposits from your paycheck, pocketing rather than spending a windfall, or seeking out secondary streams of income—help you develop a savings habit. Every time you do it, it becomes just a little easier.
As most of you know, creating a new habit (especially a good one) is hard. But once habits form, they’re equally hard to dislodge.
Once you’ve done the work of forming a savings habit, saving won’t feel like work anymore.
So what are you doing? Go get started!