How do you save, given all the pressing expenses of daily life (fish tanks and so on)?
Here’s where the “simple” part comes in. You save by deliberately moving some money out of your checking account and into savings every month. Well, duh! But wait, there’s more. When you have less in your checking account, you won’t spend as much. You’ll trim your expenses, here and there, without even thinking about it. It’s automatic budgeting — as easy as that.
Copyright © 2006 by Berrybrook Publishing, inc. Reprinted by permission of Simon & Schuster, Inc.
To get in the groove, arrange for a sum to be taken routinely from every paycheck, for savings and investments. You’ll almost certainly spend all the rest of your pay, but your daily expenses will adjust themselves, magically, to the amount of money in your account. You will budget mentally, without having to write everything down.
OK, I hear it. You’re saying, “You’re nuts. I can’t save any more. I need my whole paycheck to pay my bills.” Believe me, I understand the feeling. In fact, I’ve been there. That fear just happens to be wrong. There’s always some money to spare, even in a paycheck-to-paycheck life. I can’t explain it. All I know is that spending adjusts, up or down, for the amount of money available.
By putting less cash at your fingertips, you’re instantly ahead of the savings game.
I learned this in my twenties when I was a single working mother, struggling and not saving a dime. A friend advised me to sign up for the company retirement account and I said, “Not a chance, I can’t afford it.” He persisted until, with fear and trembling, I agreed to have 5 percent taken out of each paycheck and saved. What happened then? Nothing happened! I didn’t consciously buy any less or get behind on my bills (or any more behind). My life didn’t change, except that I started building my first little pot of savings. The hidden discipline of payroll deduction picked up the dollars that — even on my limited earnings — slipped through my fingers without a trace. I became a convert. Gradually, I raised my savings to 7 percent, then to 10 percent, before I felt a pinch. (That pinch kept me at 10 percent — for awhile at least.)
Why does automatic budgeting work? Beats me. Some quirk of mind lets you forget the money that’s out of sight. You act as if what’s in your checking account is all you have. Somehow, you offset your savings with little spending cuts that become part of your everyday household calculus. In a month, you’ll find yourself living below your means without thinking about it. That’s the only place savings can come from — the slice of your income you don’t spend.
Automatic payments help with more than just your budgeting. Once you learn to trust them, they can order your life in many useful ways. They’re the path to your objective: a simple financial setup that leaves you free to focus on the more interesting things you do. Automatic management also fosters financial moderation — a virtue in itself. Your apparently “rich” neighbors, whose every paycheck and bonus fly out the window, will have to retire to a cheaper digs in their later years, out of touch with their former friends, and struggling to get by. You’ll ask, “Where are the Joneses everybody tried to keep up with?”
Once you start planning, you’ll find many great ways of automating and redirecting your spending and savings.