We know we should save money if we want to be better off in the future, so why is it so hard to resist the temptation of spending whatever you have leftover from your paycheck after paying rent instead of throwing it into your savings account? According to CFP Christina White at EBW, LLC in Vienne, Virginia, “if you don’t actually see that money come into your checking account, you will be much less tempted to spend it”. If you are having a hard time saving up, here are few ways to fool yourself into saving a bigger portion of your check.
1. Automatic Transfers
One of the best ways to force yourself to save money is to set automatic transfers into your savings account, This is highly effective if you set the transfer to occur on the day you usually get paid, or on the day your rent is due (as if your rent was raised slightly).
2. Automatically escalate your 401(k) contributions.
Many employers now allow you to set up automatic increases to your 401K contributions quarterly, semi-annually or annually at the rate the participant. Daniel Lash, a CFP at VLP Financial Advisors in Vienna, Virginia suggests to contribute 1% more a year to your plan because you will rarely notice a 1% increase, and still, it will significantly increase your savings for retirement over time.
3. Spare your change
Most banks have a roundup feature when using your debit card. If you opt in to this feature, any purchase you make is rounded up to the nearest dollar, and the difference, or the “spare change”, is put into an interest-bearing savings account or an investment account. If your bank doesn’t support this feature, there are a also a few standalone apps that perform a similar service.
4. Save your extra paychecks
People who get paid bi-weekly rather than once a month have a built-in savings opportunity they may not be aware of. Someone who gets paid bi-weekly will receive 2 paychecks per month plus two extra paychecks annually, since some months have 5 weeks as opposed to 4. If you set up your finances to count on two paychecks per month, the two extra paychecks you get every year can go right into your savings.
5. Spring clean and reinvest your finances.
Look through your checking account and credit transactions for automatic monthly withdrawals. You may yourself paying for monthly subscriptions that you forgot about or don’t use anymore. Once you cancel these subscriptions, create a new auto withdraw for the same amount that deposits right to your own savings or investment account each month. After this, you can repeat the same process with some of your bigger expenses, like property insurance.
6. Keep two checking accounts.
Randy Bruns, Private Wealth Advisor with HighPoint Planning Partners suggests to use two checking accounts, one for your monthly bill pay and the other for your discretionary spending. He adds that this strategy allows you to estimate how much money will be left over after your unavoidable monthly expenses (rent and utilities) and will make it easier for you to allocate how much money you will keep for personal spending and how much will be saved. According to Bruns, “this has proven to be a simple and easy way for our clients to monitor exactly how much cash is left to spend each month. Otherwise it all gets mixed up with the bills and no money gets saved.”
7. Use a credit card.
If you don’t tend to overspend, using a credit card can guarantee that you will pay any balances off in full. Use a cash-back credit card that gives you 1% or 2% back on all your purchases. This automatically gives you a small amount of money back that can be allocated toward savings.
Source: Business Insider
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Contributor: Smruthi Sriram