Young professionals (and entrepreneurs) need to save a consistent amount of every paycheck. If you can afford to save $500 a month, then you need to. If you can only afford to save $20 a month, then you need to do that too. It may seem insignificant, but over a 30-40 year career it makes a world of difference. Here is someone way smarter than me, explaining the wonders of compound interest and the importance of starting NOW.
Huge amounts of space on the interwebs have been dedicated to teaching how to save money. A Google search of “how to save money” yields 1.37 billion results, yes 1.37 billion! After reading each of these articles (kidding, I only read the first billion) they all have valid points and opinions. You could spend days reading different “experts” explain lifestyle changes that could lead to huge savings. There is value associated with that, but I believe it also part of the problem. They present you a list of 50 or 100 things to help save money. This leads to sensory overload and people tune out.
I wanted to take a different approach. I think it is more important to take one step toward saving money, don’t be overwhelmed by the sacrifices you need to make. Choose one thing you can do, and go from there. The key here is that it only takes a little bit. If you are under 30, you have time on your side. I have created a simple checklist to get the ball rolling and your nest egg growing.
5 Simple Steps to Start Saving (#alliteration)
- Decide how much you can afford to set aside each paycheck. Again, this could be $20 or $2,000. Prepare to make a tough decision. A few places to find some money: cell phone plan, cable bill, monthly subscriptions, eating/drinking habits, etc.
I use the rule of thumb that every bag lunch I bring to the office saves about $5. Bagged lunch means leftovers or a sandwich, not lobster or caviar. It seems small, but we are talking about lifetime habits.
- Create a new checking or savings account specifically for this money. You can use your existing bank or open an online account with slightly higher interest rates. I like the idea of using a completely different bank for this account. It has the effect of separating this money from more frequently used accounts. I personally feel less tempted to touch the money this way.
- Deposit the amount from Step 1 into the account every paycheck. This may sound silly, but taking the effort out of your hands will make a world of difference. It will take a little bit of effort up front, but will save you time and (hopefully) money down the road.
Note: If you can’t set this up through your employer’s direct deposit, then you need to link your main account (the one you deposit paychecks into) to the new one (Step 2) with your Account and Routing numbers. It may take a few days for the accounts to synch. After this, you can set up a scheduled transfer from the main account to the new account each payday.
- Leave the new account alone. Let the months and years pass, try not to check it every paycheck. Just allow it to accumulate. There is nothing sexy about it, that’s the whole point. You are building something. Do think aliens built the pyramids in a day?
- Check the account every couple of years. The interest made on this will not make you rich, but disciplining yourself to save will. After multiple years have passed you will have accumulated significant money. At this time you can start to think about investing it in the market or other retirement savings.
If you have some tools you use to help “find” extra savings, please share in the comments. Every little bit helps and I would love to hear ideas you guys have come up with to save some money.
Scott Moorhouse – I am a recent International MBA grad and recovering finance professional. My goal at Under30CEO is to make personal finance more accessible to those without finance or accounting degrees. Follow me at: @Moorhouse_Scott or be my friend at: LinkedInSuscribe to the podcast