Three Ways to Create Savings
By Ric Edelman
Maybe you’re finding it hard to save. That’s not uncommon, for even those who are free of debt sometimes find it difficult to save money. Many people spend all their money each month, and they can’t (or won’t) change their spending. If that describes you, the following strategies will help.
Savings Creator #1: Pay Yourself First
Let’s begin by accepting two facts. Fact One: You spend all your money every month, and have nothing left to save. Fact Two: You can’t change Fact One.
Fine. I won’t argue with you.
Instead, let’s just make a subtle change in how you pay your bills. Currently, you deposit your paycheck into your checking account, and then you start writing checks. If you’re like most, you pay the mortgage first, then car payments and other loans, followed by the phone bill and utilities. You save the credit cards (if any) for last, because the amount you pay to them is directly related to how much is left in your checkbook after all the other bills are paid.
So, you send minimal amounts to each credit card company and by the time you’re done, your checkbook balance is at or near zero. And while you promised yourself that you’d save some money this month (like you promise yourself every month), you now discover (as always) that there’s nothing left to save. In fact, you barely had enough to pay the bills themselves.
Without realizing it, you are treating yourself as a creditor -- albeit a benign creditor. You want to pay this fellow named Yourself, but you know Yourself will never hassle you for the money, so it’s okay to miss a few payments -- or ignore Yourself altogether. Thus, you pay Yourself last each month, which all too often translates into not paying him at all.
To fix this, you must pay Yourself first -- before you pay any other bills. By writing a check to Yourself for $25 or $50 (or whatever), you are certain that you will have paid Yourself -- before your checkbook runs out of money.
And if you’re concerned that you will run out of money, don’t fret -- because you’re going to run out of money anyway (you always do, right?). At least, this way, you’ll run out of money after you’ve paid Yourself. And that’s the point.
Savings Creator #2: Your Future in a Peanut Can
Try using a trick my big brother Brad taught me when I was eight years old: Stop spending coins; spend only paper currency.
It’s easy: Just put the change you collect each day into a piggy bank (I still use the Planters Peanuts can that Brad gave me) and you’ll save $20 a month or more -- and double the savings if your spouse does likewise, even more if you get the kids involved. Then deposit the money into your mutual fund account every month.
Who says saving money is hard?
Savings Creator #3: The Right Way to Use Supermarket Coupons
If you’re like most people, you clip coupons. And you redeem them at your local supermarket.
And if you’re like most people, you’re doing it wrong.
Think about it: The coupon in your pocket says SAVE ONE DOLLAR.
Well? Did you?
I mean, did you save that dollar? Or did you merely spend that dollar on something else?
Maybe you don’t get my point. Say you’re headed to the grocery store to buy $50 worth of food and household goods. You have $50 in your pocket or purse, along with a “dollar off” coupon that you can redeem against an item you need to buy. When you leave the store, you will have either:
- fifty dollars’ worth of items, and one dollar in your pocket or
- $51 worth of stuff, and no money left because you spent it all!
Although the former is how you’re supposed to handle coupons, the latter is more likely how you are handling them. If you’re smart, you’ll spend $49 and SAVE ONE DOLLAR by placing it into your peanut can before you even leave for the store! (See Savings Creator #2.)
Originally published in The Truth About Money 2010