A blog about spending wisely in your twenties, with advice on everything from cooking to saving money on gas; how to teach yourself to save money instead of spending it, traveling without breaking the bank, and much more.

Thursday, March 27, 2008

Guest Post: Creative Saving Strategies

The habit of saving did not come easily to me. Only in the past six months or so have I truly begun to become disciplined about socking part of my paycheck away. I could write an article about it myself, but it would be chock full of ideas and strategies that I learned from my buddy Arjay. Arjay is one of the only people I know who was putting money away while most of the people around him spentspentspent. So for this post, I turn you over to Arjay, age 23- who has well over two month's salary in savings.

Here are a few tips on how to get started saving in your late teens or early twenties. I've been saving for a few years, and I'm glad I did because when I really needed extra cash I didn't have to stress myself out too much. Whatever your reason to save, everyone can always save- if not for something in particular, just to have something for a rainy day can really make you feel good.

Rule number one, start small. There's no need to run out and start saving a lot of money, and chances are if you suddenly save a large sum, you're just going to need it later, and that would defeat your purpose of saving in the first place. I started saving just little bits here and there with my first job right out of high school. I started saving maybe $5 or $10 dollars a paycheck. I've found that most people are comfortable starting out with saving one to two hours of work. As I started working odd jobs through college, I followed this rule, and it's worked out well for me. Small amounts over time really add up.

Next, pick a bank with a high interest rate. This is pretty obvious, but some people just get so excited about starting to save that they forget to get the most out of it. Most internet banks offer a rate that's way better than what you can get at a conventional bank. Some good ones are ING Direct and HSBC Direct, and most have referral bonuses if you get referred or refer a friend. Also, I found out that I earn more interest with ING Direct in one month than I did at Wells Fargo in a year, and most internet banks will let you open an account with a buck. That's no joke. There's another reason that I recommend internet banks, but I'll mention that later. Sign up for direct deposit and have your employer split your paycheck between your savings account and your spending (er checking for most people) account. Or if your employer doesn't offer direct deposit or can't split it, set up an automatic transfer on or just before payday. Remember always pay yourself first, and bills and rent can come after that. You are your most important bill. It's a lot better if your employer can split it for you because if you don't see it you don't spend it, and most importantly you pay yourself first.

So the other reason that I highly recommend internet banks is that most have to link to an existing checking account, so it takes at least one, in most cases two business days to get your money to where it is accessible (read as: spendable). If it takes that long to get cash, you're better off just leaving it in there for when you really need it or if something comes up. I've wanted to buy so many things with the money that's in my savings, but then I thought it takes too long to get it out so why bother, don't worry about your bank being on the internet. Most are FDIC insured, meaning your deposits are safe even if the bank goes under.

Lastly, increase your savings per paycheck. This is probably the most important rule next to saving gradually (small amounts over time really do add up). Like I said, I started really small and now I'm saving about 15-20% of my paycheck. The best way to increase your savings per paycheck is when you get a raise, just bank the raise. You didn't have that cash before, so just sticking it in the bank won't hurt you.

Now, I know what you're thinking…saving is great and all, but what if I get discouraged because I'm saving money that I can be doing other stuff with, or what if I'm really tempted to spend it. Here's how I combat both issues…First off, I think to myself that if I were to suddenly not be able to work tomorrow, I have enough savings to last a few months at least, and how many people can honestly say that. Sure I'll have to make some sacrifices, but I won't be on the street immediately. By saving and paying yourself first, is actually a way to pay for a sense of security. Think of saving as a kind of a "money insurance." I mean there's car insurance, health insurance, home owner's, and renter's insurance. Most people pay for those monthly anyway, so saving is really just like another type of insurance that you pay for, and while you may never need it…It's good to know that it's there. Also if you really end up not needing to tap into it, you can do something good for yourself later…like take a nice vacation or get a new toy that you've always wanted without going into debt. How many kinds of insurance reward you for never needing to use them? Saving is the only type of "insurance" I know of that rewards you instantly for not having to use it (whether it's the interest or sense of security).

Another way to keep you happy while saving…is to periodically reward yourself when you reach a savings goal (please note, a reward is not every month). Increments of $250, $500, or $1,000 work best. Have a fun night out with the portion of the paycheck that you would have saved, or take out some of the interest to buy a book, DVD, or something small that you've been wanting.

There'll be some more posts on how to get creative saving and what to do with your money once you're bored of "just saving." For now, my hope is to get the twenty-something crowd to start saving and thinking about saving in a new way.


Erika said...

As soon as I get my paycheck, I pay as much as I can toward my credit card balance and leave my checking account with only enough for me to survive. My reasoning is that I'm paying 10% APR for my credit card, which is much higher than any savings account that I have seen. I also have enough cushion now on my credit card that I could survive a couple months if I need to, especially since there is no cash advance fee.

klm said...

erika: being not a good saver myself, it killed me that my husband followed your policy. The money not paid in interest on loans was more than we could make in savings, but still, I wanted money in the bank!