Original post date October 6, 2017. Updated on January 13, 2022.
Please raise your hand if you are struggling to save money. Now, remember you are not alone. Many people are struggling to save money, and some are living paycheck to paycheck. I decided to write this post because almost daily one of my friends or someone in my family asks me, “How do you always have money?” or “How can I save money for my future like you did?”
I am going to list the habits I have built into my life over the span of 30+ years. Some of these practices I have learned from my dad, and some of these habits have been augmented with a few pointers that I have learned from other people.
I am not an accountant or a financial coach/adviser. I am not going to go into IRAs and 401K’s in this post. There are people out there that are far more qualified to advise you on that than I am.
15 Habits That Save Money
1. Pay yourself first
From the time I was a teen and legally allowed to work, I would put 10% of my paycheck each week into a savings account that earns interest. As your income increases, strive to pay yourself 30% of your income a week. You can start this even if you are a teenager who babysits or does side lawn jobs for your extra cash. My account is my second retirement account. One day all workaholics must stop working, maybe…
If you make 250 dollars a week at 10%, you will put 25 dollars away each week for a total of 100 dollars a month. If your paycheck is bi-weekly, you will save 50 dollars every two weeks. In a year, you will have saved up 1,200 dollars, and have earned a little bit of interest on top of it.
TIP: If you have a direct deposit of your paycheck, ask your human resource representative to split the direct deposit into two, sending your 10% weekly payment directly to “your pay yourself” first account. If you do not see that money in your primary account, you will not think of it as disposable income.
2. Create a 3-month cushion
A 3-month cushion is simply having enough money saved to survive three months if you lost your job today.
Steps to accomplish your 3-month cushion
Add up your monthly expenses for three months.
Take a minimum of 10% of your income each week, and put into a separate savings account that earns interest.
Pay into it each week until you have three months’ worth of survival money.
Do not touch it unless you lose your job and cannot pay your bills.
If you have reached the goal of your three-month cushion and your bills have increased, keep saving until you meet the new requirement minus the interest earned.
Don’t touch the money in your cushion account unless you absolutely need it IF you lost your job today. Only take out the money you need to buy groceries, pay bills and so forth.
Once you have a new job, pay back into it what you took out. Strive to go a step further, save for a 6-month cushion.
Personal Note: I am grateful that my dad instilled this idea in my mind before I left his nest. When you retire from the military, they do not have to pay you for 90 days after separation. During that 90 days of no income and no job, I would have struggled and would have had to dip into my “pay myself first” account to survive. Because I had a cushion set up, I didn’t have to touch that account. My “pay myself first” account is one of my means to survive when I do retire again later in life and am no longer working.
3. Track expenses
Save your receipts for this exercise. You can use your credit card and bank statements for this also, but if you are a cash spender like I am, you won’t have those recorded on your statements. Track for three months.
On paper, write down the following:
How much you make a month after taxes, list all forms of income including any rent you receive.
Fixed Bills (payments that are always the same such as rent/mortgage, car payments, insurance, school loans, etc.)
Variable Bills (utilities, groceries, cleaning supplies, hygiene supplies, pet food, gas for your vehicle, public transportation, etc.)
Savings accounts (Pay yourself account, three-month cushion, emergency fund, etc.)
Investments (401K, Roth Ira, etc.)
Other (going out to eat, movies, payments for MMORPG subscriptions, Netflix, etc.)
Total everything, what you thought you were going to spend, and what you did actually spend.
After the three months is up, and you have figured out what you spend, you will have a realistic window to where your money is going. You can also use this to figure out what you need to cut out in order to save money or keep afloat.
Why I don’t budget anymore.
I used to budget religiously and hated it. A few years back I read a post by Ramit Sethi, 5 unconventional truths about money. In point #2, he talks about why budgets do not work. He pointed out my exact feelings every time I sat down to budget. Guilt, stress, pull hair out of my head…
I was already automating payments either through my bank or through auto-pay with the companies where I had variable payments, like my utilities. I felt ahead of the game. My bills were always paid, and I was never late. Take Ramit’s advice, automate your bills, you will not regret it. Automating your money so you don’t have to worry that you forgot to pay a bill will give you a liberating sense of freedom.
Regardless of my anti-budget stance, every year starting in January, I track expenses for three months to see where your money is being wasted and what things we are spending money on that we don’t use anymore. I don’t find myself stressing over my three-month tracking as I did with a 12 month every year budget. I remind myself that I am tracking as a learning lesson, and not out of guilt. Learning a lesson makes it okay…
4. Meal Planning
Prepare a menu for the week you are buying groceries for. Shop your kitchen, freezers, fridge, and cupboards when preparing your weekly menu, plan recipes around the items you have. Purchase only the things you don’t have for the week to finish your recipes for meals and snacks.
If you are doing your 3-month tracking exercise, make sure you keep your receipts to check how much of your monthly income is going towards food.
5. Buy some items in bulk and buy in season
I grew up in a household where shopping in bulk was commonplace. (I love Costco.) There are many things you can save money on buying in bulk, but there are many things you will waste money on. For instance, if you use a lot of crushed tomatoes, buy the case instead of single cans. You will save money in the long run, and you won’t need to buy that item again with your budget next month. If you purchase mayonnaise in bulk, chances are it will go bad before you use it all, unless it comes in individual jars that you can share with your family and friends.
Shop the bulk bin section for your flour and grains. In most cases, you can purchase your flour for less than buying a bag off the shelf. For instance, I can buy coconut flour cheaper per pound at Whole Foods Market’s bulk bin than I can buy it off the shelf anywhere else including Costco.
Only buy fresh produce in season. Buy produce when the item is in season and plan ahead for winter. Freeze some on a cookie sheet, and once frozen, put them into a container to store for later. If you have a canner, you can also home can produce that comes with a high price markup during their off-season time. The Farmer’s Market is an excellent way to buy in-season produce in bulk quantities for a nice low price. You also get to feel good about helping out local farmers.
You can also buy frozen produce during the winter months at a better price than you can purchase fresh produce during that time of year.
6. Bring your own lunch to work
To me, bringing your own lunch to work isn’t about living a frugal lifestyle, it’s about health. Granted, when I used to go out every day during the week for lunch with my work friends I would find myself spending up to 100 dollars a week on just lunch, and frankly, that food wasn’t quality. That was a little too much money blown on crap to me. I didn’t feel good about spending it, and I didn’t feel good physically after eating it.
Leftovers make great lunches, and if you do a weekly cook up you can prep lunches in advance.
I am not saying don’t go out to lunch if you want to, but if money is tight it is a good practice. I do lunch out on Fridays to reward myself at a quality restaurant. Nothing beats a great steak sizzling as it comes out on that big old plate of leafy greens in my opinion.
7. Stop Impulse Buying
If you cannot afford an item right now, and the need for it isn’t dire, don’t open a line of credit or use a credit card and add to a balance you can’t pay off quickly. Save for it, if you still want it when you have the money, it was meant to be. This point isn’t about being frugal, it is about common sense. That bright orange dress you fell in love with at the store might not be a good idea long term. Trust me…
8. Pay with cash
I am a cash kind of girl. I hate wasting money on ATM fees, not that I can’t afford it, more as I can see better things to do with that money. This is a continuation of habit 7 in reality. If I don’t have the expendable cash for something I want, and I don’t actually need it, I don’t buy it. I do save for it, and then if I still really want it, I will buy it.
Recent example, fits points 7 and 8… I really, really wanted those LED illuminated wheel rings… 600 bucks… I didn’t want to spend the cash for them at that moment, I had other things planned for my extra cash… they offered me a line of credit at 21% for them which I turned down. (21% are you kidding me??!!) I saved the money for 3 months and realized, I really don’t want them as much as I thought I did in that moment of impulse.
9. Research items before you buy.
This has become much easier than it was back in the “olden days” before the Internet. We used to have to read newspapers and call up stores to find out better buys on high-end items.
I agree with Ramit Sethi, paying more for something that is quality is a smart idea. Especially with appliances, sometimes paying for the higher-priced model is better than the cheaper model. Usually, the higher-end item comes with a better warranty and lasts longer.
Through Ramit I found The Wirecutter and use the site often, even if I do not agree with their report on blenders or the fact that they used a 12-year-old version of the Ninja to do a comparison in 2016. Just saying, but anyway, it is a good place to start your research.
10. Put your loose change into a can or jar
I always get stuck with so much loose change, that if I didn’t put it into a jar, I would lose it. Every January I take my change into the bank to disperse across my savings accounts. Each year I am surprised at how much money in change I have, and often wonder how much money I have lost before I started doing this. In Jan 2017, I cashed in over one thousand dollars of just loose change. I deposited most into my savings accounts and used a portion for a little family fun as a reward.
11. Sock it away.
If there are 5 weeks in a month (there are 4 of those), put that fifth-week income into your savings accounts.
If you get a tax refund, put that into your savings accounts or use it to pay off debt.
12. Snowball or Avalanche your debt
Debt Avalanche –
A method of repaying debts in which a debtor allots enough money to make the minimum payment on each debt, then devotes any remaining debt-repayment funds to repaying the debt with the highest interest rate.
Read more at Nerd Wallet.
Debt Snowball –
A debt reduction strategy, whereby one who owes on more than one account pays off the accounts starting with the smallest balances first, while paying the minimum payment on larger debts.
Read more at DaveRamsey.com
I began my path to debt freedom by snowballing my debt. I paid off my smallest debts first. Today I have two debts left, my school loans and my mortgage. I am currently avalanching my school loan because the interest rate is higher than my mortgage. I am locked in at 1.3%, thank you V.A.
13. Don’t use ATMs that cost you usage fees.
I know this is easier said than done. When you sign up for an account, you get a little pamphlet listing all the ATM’S your bank is affiliated with, meaning the ATM doesn’t charge you a fee for using it, nor does your bank. If you have ever looked at your ATM receipt, you will see that you probably have been charged up to 3 dollars by using the machine, and on your bank statement, up to another 2.50. That is 5.50 just for drawing money out of the ATM. For most people, 6 dollars isn’t much, but if you are at the point in your life where you are living paycheck to paycheck, that money could be spent better on a pound of hamburger or a gallon of milk.
If you know you need cash, stop at your bank and withdraw instead of leaving it to chance, especially if you are going to a flea market because you are addicted to antiques and turning someone else’s junk into treasure. The ATM at the flea market I go to charges you a 5 dollar fee just for your withdrawal.
TIP: Some banks will refund you the first 15 ATM fees a month. See if your bank has that option and “forgot” to tell you about it.
14. Set up multiple accounts
Shop around and find the best rates, and find out if they charge a fee if you don’t have a minimum balance in an account. Create your savings accounts, and put in minimum balance to open them up. You can also find other great incentives to bank with a specific company.
As mentioned in point 13, my checking account that is not for my bills has the ATM usage fees returned, I also get cash back on what I buy from that checking account. It is also one of the few banks that gives a minor percent rate back to checking accounts. Also remember to find out if it will cost you to move your money from account to account, or even to and from another bank.
Break down of my accounts:
These are all at the same bank, I get a debit card to use, plus I earn cash back for some of these.
“Pay Myself First” Point 1 of this post. I set this account up initially at Navy Federal when I was a teen.
Emergencies – I use this account for things such as water heater or furnace dies, and I need to replace them, major vehicle repairs, an appliance dies, and so forth. I have earned cash back on this account when I had to buy my new washer and dryer.
Cushion – Point 2 of this post.
Gifts – I have a separate account for buying gifts for birthdays, anniversaries, and holidays. I originally set up this account when I was a teenager, putting a certain amount of the money I earned from my part-time job after school into it.
Home Renovation – I opened this account when I purchased my first home. I put money into this because home renovations are expensive. I have recently used this account to have new windows installed. It is a nice feeling to pay for things like that with cash, knowing you have 0 new debt and no interest fees to pay every month.
Vacation – This account is my reward account. Each year the money saved in this account is used for a family vacation.
Pet Emergencies – This is a relatively new account, one I never thought I would need until the worst happened to my German Shepherd, Durga. When she was diagnosed with cancer, I struggled financially to do everything that could be done to save her life. I have no regrets, the financial struggle I had to save her prolonged our time together another three years, and she lived the rest of that healthy and happy. With more fuzzy children in the household, creating this account was a wise idea, I want to do for them everything I can if the worst happens.
Yes, I have two checking accounts. You are allowed to do that. I got the idea to make a bill paying and an everyday living checking from Ramit Sethi’s willpower posts. For me personally, if I see it, I would spend it. Impulse buying has been difficult for me to grasp and actually do at various points in my life. I am only but a mere mortal. With that said, separating my everyday living from my actual bill-paying account is a safer way to go. Out of sight, out of mind.
Bill paying – This account is fully automated to pay all of my bills for me. I earn 0 interest on this account and get 0 cash back for purchases. I leave a 150 dollar cushion in here at all times on top of my bill money.
Everyday living – This is at the bank that gives me a little interest on the money in my checking account, plus I get cash back on certain purchases. This account is the one I buy groceries, and household needs with, go out and have fun with, purchase gas with, etc.
15. Use only one credit card
Research the best card. Find one that has a low APR and gives you some kind of incentive to use it like money back or reward points to spend on X, or ideally gives you both. I never put more on my card than I can afford to pay off in one shot, but I use it enough to keep it open. Thanks, dad.
TIP: You can transfer your credit card debt from one card to another. If you transfer a large balance to a credit card with either lower interest or 0% interest, you will be able to pay that off quicker and save some money. Find a good credit card to transfer to over at Magnify Money and Wallet Hub.