If you’ve found yourself spending too much, struggling to save for an upcoming expense (who knows, it could be a vacation!), or strapped for cash between pay cycles, don’t stress out. These are common troubles, and they’re easily remedied.
In today’s post I’ll show you how you can tackle all of these problems without using complicated budgets, expense tracking apps, monk-like levels of self-control or fancy financial tricks.
No More Avocado and Toast??
It’s become a running joke that millennials spend way too much on avo and toast (a blasphemous proposition, I know) and coffee. But rest assured, I would never prescribe that you cut down on the delicious breakfast, let alone the much needed morning pick-me-up.
Ramit Sethi (Brilliant and hilarious author of I Will Teach You to Be Rich) laments about how most finance “gurus” tell you to cut down on lattes to save money, but that’s precisely the wrong place you should be looking at if you’re trying to improve your finances.
The problem is, unless you’re a robot or have unnatural willpower, you will want to make small impulse purchases at times, but there is a way to ensure that you can still do that without going overboard.
If you look up articles on how to increase your savings or cut down on expenditure you’ll find a wealth of information which all say pretty much the same thing. They’ll tell you to cut down on you small expenditures which apparently end up in big savings. They also advise keeping track of your expenditure using an app for example.
How many people do you know who actually stick to this? I’ve tried using an app to track every single expenditure but eventually I gave up because I kept forgetting to do it, and it was very bothersome. I eventually came up with a much simpler way to ensure that my savings were growing, while not having to worry about tracking every single dollar of expenditure.
There are a couple of ways of going about this, but I’ll show you my method and you can tweak it accordingly.
The Secret Sauce – Make Your Money Inaccessible
Or cumbersome and time consuming to access, at least.
Here’s how to do it:
- Open an additional bank account
Keep your current bank account and open an additional one, preferably at a different bank if the interest rates are competitive. If not the same bank will do.
Another benefit of opening an account at a different bank is that you can avoid downloading the app that might come with it, which helps reduce the convenient access to that money.
- Set up auto-transfers
Next, and here’s where the magic happens, you set up an automatic transfer of a certain amount that will go out of your main account every month and directly into your secondary account. The key is to have the discipline not to use the secondary account unless it’s an absolute emergency.
That’s why I mentioned opening the secondary account at a different bank. Doing this makes it harder for you to transfer money to your main account, thus decreasing the likelihood of you ever using it for regular expenditure.
- Make your secondary account harder to access
Make it hard to access those funds by declining a debit card, if you really don’t think you have the willpower necessary to do this. Alternatively, accept the debit card, and leave it at home.
By doing this, you won’t need to stick to a strict budget and sweat the small stuff.
If you have a budget of $1000 per month for example, automatically transferring $200 out of that account every month allows you to stop worrying about consciously saving money. Of course, being frugal is always a good thing, but this method is more about guaranteeing a set minimum amount of savings.
If you don’t see the money in your account (because it’s already been automatically transferred), you won’t miss it. It will also give you peace of mind, knowing that you are definitely going to have an emergency fund if life suddenly decided to perform a belly-flop on you.
Let’s go back to Ramit Sethi for a second. In his book “I Will Teach You to be Rich”, he talks about something very similar to what I’ve just described above. He mentions that worrying about small decisions like having a latte vs not having a latte just to save $3 is not the point. The big stuff is what is really important. Automating your savings allows you to spend knowing that you’ve already guaranteed your savings.
That’s all for this post, and as always, leave a comment or email me and let me know your thoughts! Also, if you have your own tips, I’d love to hear it, and possibly feature it in an upcoming post.
You can check out Ramit’s blog here. It’s a fantastic resource and a lot of his content is absolutely free.