How I Tricked Myself Into Saving More Money
Here's a simple way to make your money work smarter for you.
Are you stuck in savings purgatory? I've been there. It's easy to feel stuck and like you're falling behind.
But, in many cases, you're not. Higher energy bills, gas prices, and the soaring costs of everyday goods have made it difficult for many to reach their savings goals. The Bureau of Labor Statistics found that gasoline prices rose 21.2% while energy commodity prices rose 21.3% in March.
This is why you have to find creative ways to bridge the gap between staying where you are and gaining momentum to where you want to go. I'll show you a trick that's helped me over the years, and how much you can earn from it.
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Creating a forced habit could unlock your savings potential
About a year ago, I was freaking out a little. My wife was eight months pregnant with our first child, and even though we were doing well financially, being a first-time parent can create undue financial stress because you want to make sure you have more than enough money in case there are problems.
Thankfully, that didn't end up being the case. We have a delightful and amazing baby girl who keeps us very busy in the best ways possible. But at that time, I wanted to squeeze more juice from the lemon if I could.
So I used the power of fiction to alter my spending habits: I found some excess money in our budget and created a fictionalized expense. Then, I paid that expense by depositing money into a high-yield savings account. It wasn't much, but it was enough to provide peace of mind in knowing that I was making my money work smarter for us.
Using the Netflix example
Now, I know what some people are thinking: It's easy to say that money bags, but my finances are tight, like needing to breathe tight.
And that's okay. This strategy can work in any situation or any budget. The goal isn't to take money away from the things you need; it's creating a purpose for the money you have. Whether that's $10 a month or $150, any money saved is money you won't have to earn again.
"Assigning a purpose to every dollar in your budget allows you to maximize your savings potential."
Sean Jackson
Take streaming services, for example: Netflix's premium plan is $26.99 + taxes. That comes out to at least $28. Say you discontinue Netflix or find perks to get the ad-supported plan for free through select T-Mobile plans, that's saving you $28 per month.
Instead of just shuffling that money back in with everything else, where you're likely to spend it, create a line item in your budget. Call it anything you want, and once a month, transfer $28 from your checking account to a high-yield savings account.
Why a high-yield savings account? Because online banks offer the best returns. It can also be more difficult to withdraw money easily since many banks don't offer ATM cards.
On top of this, most online banks don't impose fees or minimum balance requirements, and you receive FDIC insurance to protect your assets up to $250,000 per account holder.
Use this Bankrate tool to find the best savings rates quickly:
How much can I earn with this approach?
It won't make you rich overnight. Instead, what you'll discover is incremental momentum.
Using the Netflix example of $28 per month, if you deposit it into a HYSA earning 4.20% APY, here's how much you can earn:
Year | Earnings (principal + interest) |
|---|---|
1 | $340 |
5 | ~$1,850 |
10 | ~$4,100 |
20 | ~$10,400 |
In one year, you'll save almost $350 more than you would have by continuing to do the same thing. Over 20 years, you'll earn more than $10,000 for making one minor change to your budget.
Now, if your savings are in good shape, then you have the potential to earn much more. Say you invest that $28 per month into an index fund tied to the S&P 500, earning an average return of 7% per year, you'll earn close to an extra $15,000 for your retirement. That's not bad for one budget adjustment.
Of course, inflation and the Federal Reserve's future policies can influence your future earnings. If the Fed cuts rates and you have a high-yield savings account, your APY will likely dip. Still, earning thousands of dollars for a minor change can create momentum, renewing your hope that you're on the right track.
That's why I recommend analyzing your budget, finding one thing you know you can do away with or using any excessive money without a purpose, and creating a forced expense instead. Devote this money to savings or investments, and over time you'll see your balances grow, putting you back on the road towards achieving your goals.
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