Tricking Yourself Into Saving
Now here's where I really like to get excited about this part of savings. How do you start to play mind games with yourself to get encouraged to save? 'Cause let's be honest, kinda like it's pal budgeting, savings is not necessarily the most fun, because it means you're probably giving something up in the present in order to prepare for the future. (coughs) Excuse me. So one of these things that you can be doing is setting very actionable goals. And I'm gonna give you a real life example. When I went to college, my freshman year, I decided I wanted to save $10, before I graduated college. And my rationale was that I knew I wanted to move to New York City when I graduated. And I've no idea where the number the 10,000 came from to be totally honest with you, but for some reason to me that sounded like not only a ton of money, but it also sounded like an amount that you can move to a big city, you can put down a security deposit on an apartment, and you can have a little bit of breathing ...
room while you try to find a job. I was planning just bring my bag, move in there, not even have a job set up type situation. Such a classic tale. So I set this goal as a freshman, and that is a big number. And it's easy to put it off, and say, well, I'll worry about it when I'm a sophomore. Or I'll worry about it when I'm a junior. But instead I decided to chunk it down and make it very actionable. I decided I need to save $2500 a year for the next four years in order to hit my goal. But even more specifically, I need to save about $208. a month or about $7 a day. If you can get that specific with it, it now all the sudden feels like something you actually can do. Because $10,000 as a number just sounds like a lot. But if you're now saying, well, 209 bucks a month, I can figure out how to make this happen. And honestly I did, I focused on getting jobs all throughout college, as well as internships during the summer and ways that I could make money. And every time I got paid, I put that amount aside in hopes of pursuing this goal. Like I said, it can be so overwhelming to set a big, hairy goal, but if you break it down into very actionable bite-sized chunks, that's how you can feel more encouraged and motivated as opposed to keep going, (sucks air in), $10,000, I'll worry about that next year. 'Cause 208 I can handle right now. Another one that I love is this idea of nicknaming your savings accounts. Now I've actually kind of teased this already, 'cause I said that I as a freelancer put money aside every time I get paid, I put a percentage into my Uncle Sam's Money savings account. It actually says that on the title of my bank account, it says Uncle Sam's Money. It's just not something that's in my head. 'Cause perhaps, unbeknownst to you, a lot of banks will actually allow you to tailor the name of your account. So it doesn't just have to be Bank Account with random number of digits afterwards. And no, that's not my real bank account number. You can say something like Honeymoon Fund. So now you know every time that money's going in there, that's what it's going towards. And part of the reason you do it is because it does throw up a little bit of a psychological block for you. Because think about it this way, if you got to skim a little off the top for an indulgence today, and it just says Bank Account 3983810, nah, it doesn't mean anything. But if you go to skim it out and it says Honeymoon Fund, you're thinking, is what I'm about to do really worth it? And I'm gonna have to either figure out how to put this money in or it means we can't do XYZ thing on our honeymoon. And you can get really specific, like South Africa July 2019. The more specific you can get, the better-- There's usually a character restriction though, so just keep that in mind when you're nicknaming. But, the more specific, the more you're gonna attach to it, and the more you're going to remember, okay, this is why this money is there, this is why I'm not gonna touch it. This is one of my absolute favorite ways to try to protect yourself from yourself. And then automate your savings is huge. I touched on this briefly earlier, it is a little bit tougher when you are self-employed. But if you do have an employer, please go to HR, go to payroll, whomever it is; and ask for them to route a percentage of your paycheck directly into savings. And like I've already mentioned, this idea of it being possibly a completely separate bank account or a completely separate bank than where you do your checking, to out of sight, out of mind, means that you can very slowly have an amount accruing, that you're honestly kind of not even paying attention to. I don't what you to forget that it's there, 'cause I always want you to be in control and knowing about your money, but, if you're not checking in on it all the time, and if you're not tempted to move some over every time you check your checking account, it's really helpful. Now for those of us who don't have the opportunity to have an employer do that, there are a couple different options. There are different apps that you can use that kinda analyze your spending patterns and automatically move some money to the side. You could think about something like that. It could be that you know on the 15th of every month, you have it set up for your bank to automatically transfer a set amount of money, so that money has to be in there. But that's gonna take diligence on your part. Or you can just know every singe time you get paid, you're gonna give a percentage of that to Uncle Sam, so you're gonna put that into your tax account. And you can say every time I get paid, another 5% or whatever percentage you want it to be, is immediately gonna go into savings. It's harder to take the potentially fallible part of you out of that equation when you're self-employed, but, again, there are benefits, pros and cons, to it. So that's one that can be a little bit tougher. Now this is a really important part of this segment, and I'm sure this is what we're gonna start to get some questions about. And I'm happy to pause for questions if we have any so far. If anybody has questions about what I talked about for techniques, or, if you have one that you've used that you'd like to share, I would definitely love to hear about that. Yes.
What do you do when you feel like you keep putting money into savings then you take it immediately back out because you need it? I feel like I'm always raiding my savings.
I think it's a two-fold approach. One is creating a budget in general. Which, yes I know, ugh, no, I don't like it. But you don't have control until you know your cash flow. And I think that is really step one. Step two with that too is evaluate how much you're putting into savings. Are you trying to be so bullish on the amount that you think you can put aside that you're over saving? And then you just have to keep pulling it out. Maybe pare it down. And if all you can put aside out of every paycheck is even if it's just 10 bucks, I don't care. But it's the habit that you're starting. And we're gonna get into that in a minute. But it's something. And then it also will hopefully help reduce this feeling of I keep raiding, so what's the point? So I would also analyze how much you're putting in, 'cause it could be that you're trying to do what you think is right but that's not the amount that you actually can afford to be putting into savings. And looking at it that way. Yep.
So, what I'm hearing you say is, 'cause I've always had this approach just as a background, Erin, that if I have debt or I'm accruing interest on something, it doesn't make sense for me to put it into a savings account that's like earning you 1%, right, or 1.5%. So what I'm hearing you say, is that by not doing that on some level, you're just in this cycle that's never ending. So I guess my concern is, okay, if you have a credit card, let's just say it's like 17 or 13%, and then you're trying to save, it's like where the balance is in that. So i guess my take away is maybe you're supposed to put in a thousand aside, but still try and pay that off until you have that really under control, and then increase. Is that what you're saying?
Yes, so to come back to the idea of if you have debt, especially something like credit card debt with a high interest rate, I still do want you to try to have $1000 set aside. It doesn't have to be all at once. So, for example, if you get a tax refund and it's two grand, you don't have to take $1000 out of that. Maybe you just take $200 out of that and throw the rest at the credit card debt. 'Cause I also understand it's not only the numbers, it's also the debt aversion that you might have, and you just so aggressively want it gone. The reason I still advocate for putting some money aside into savings and an emergency fund is because something's gonna happen between now and when that debt is paid off. And if you don't have any sort of buffer for it, it just means it's gonna be put on your card and that's just gonna keep the debt cycle going. So that's why I like this idea of working to build $1000 buffer in your emergency savings fund. And once you're there, you can reallocate every other penny to slaying that debt dragon if that's what you wanna do. And then pivot back to hitting other financial goals. And part of this, too, is it comes down to people's personal preferences. Some people are a little bit more comfortable carrying that debt. I'm not saying that's the right decision, but that's why they might also be in their mind justifying balancing and other financial savings goals. Briefly, also touching on this idea of investing, and we'll get into it in retirement, but with the exception of you should always get an employer match if you have the option, but otherwise, if you're paying off high interest credit card debt, you're probably not beating that in the market. Focus your money on paying down the consumer debt first, and then we can come back. Yes.
So, because I know you and I are so so different when it comes to our attitudes toward money, I'm sitting here being like, you seriously want me to have nine months of... like money I need set aside. And I understand then, you're like, so say for me, it could be $18,000. But you're like $18,000 you can work on building that over the next like 18 years. Just kidding, not 18 years, hopefully. But, you're describing all these different things. If you had to have people focus on one thing, is it like getting $1000 in that emergency savings? Is that your number one thing? Because I feel like, for me listening, and like, wow, you're saying so many things and these all sound so wonderful, but what's the number one thing I should be focusing my energy on right now?
There's two things I want you to focus your energy on. In terms of of these goals for savings, $1000 is the metric. With or without debt, I think that's a really great bar to just start with. If you don't have any debt, I want you to push for two to three months of living expenses, bare minimum living expenses. But that first $1000 is really the initial hurdle that I want you to get to, 'cause that can feel like a lot to save. And then once you get there, you can kinda feel like you got the ball rolling a little bit. But the other thing I also want you to think about is not the idea of slashing but also learning and figuring out how to earn more. And we are about to dig into that. So I think that's a critical part of this conversation, is not just about cut cut cut, but it's also about how can we earn.