How to Start Saving Money When Living Paycheck to Paycheck
Saving should be simple, but the truth is that for many of us, extra money can be difficult to find when expenses pile up. When you add in unexpected costs that may come up, saving money can seem impossible. A recent survey found that as many as 78% of Americans live paycheck to paycheck. Without surplus money, how does a person start to save?
Set a Goal
A great place to begin saving is to think about the reasons why you would like to save. Maybe you are trying to put away money for retirement or start an emergency fund. You could be trying to save enough money to make a large purchase for yourself or a loved one. Although different goals may require different amounts of money to be saved, the idea remains the same. Having a tangible goal for your money gives you the added motivation you may need while trying to save.
Track Your Expenses
This part can be difficult for some. Sit down and itemize every expense and bill that you have. That means every expense. That last cup of coffee? Add it. That pack of gum at the gas station? That goes in, too. Once you’re able to identify where your money is being spent, you can put expenses into categories for things like housing, utilities, food, gas, etc. Having these categories will help separate the essential expenses from the non-essential. For example, the money spent to pay for a utility bill is essential, whereas that money spent dining out while there is food at home goes in the non-essential category.
Create a Budget
Everyone needs a budget to provide a guideline for the money they will spend. Many people who are trying to save money already have a budget without realizing it. But now that you have tracked all of your expenses and divided them into the essential and non-essential categories, reconfigure your budget based on what you have found. Begin by covering the essential expenses. Then, look through the non-essential items to find places you may be able to cut costs. You could make more food at home instead of eating out, eliminate premium channels from your cable subscription, or fill an insulated bottle with coffee on the way out the door instead of stopping for a latte on the way to work.
Try to Eliminate or Reduce Credit Card Usage
The average household in the United States owes more than $8,000 in credit card debt, with the national total exceeding $1 trillion. You may not owe $8,000, but any balance carried can make saving even more difficult. While living paycheck to paycheck, every penny counts, and credit card interest rates will take away more than pennies. Paying down credit card debt can be difficult, but there are a few steps to make it simpler. The first thing to do is to stop using the cards, especially for frivolous purchases. Any credit card accruing interest is a money-stealer, so begin paying off credit card debt starting with the smallest balance. Getting this balance to zero will let you make larger payments on higher balances in the future.
Once you have your budget in place, you should have a better idea of how much can be saved, after expenses, from each paycheck. According to the 50/30/20 budget, 20% of your income should be going to savings, but if you can only save $5, start with $5. Remember, any money saved is a step in the right direction. Once you have figured out how much you are going to save each paycheck, begin the practice of “paying yourself first.” Take the money for savings out of your income first, before any expenses, and put it in the savings location of your choice. Most savings accounts will even help you grow your savings by paying you interest. Every penny counts!