The Rules of Thumb blog from MoneyThumb knows that our readers who are interested in personal finance topics often find it hard to save money. To help you with that problem, below we have listed 10 ways that you can actually trick yourself into saving:
1. Hide Money from Yourself
This approach will have you using the out of sight out of mind philosophy and it is to make sure you’re not regularly reminded that you have certain money. A few ways to accomplish this is to set up savings accounts at a separate institution from the one that has your checking account, so you’re not seeing your savings balance every time you log on. Or you could sign up for paperless statements for your retirement account, and then don’t check them more than once or twice a year.
2. Automate Money into Savings
Willpower is overrated. Set up automatic transfers, and you likely won’t miss the money as it’s whisked from your paycheck to your retirement fund (for example) or from your checking account to savings.
3. Give Your Savings a Pet Name
Labeling an account with its purpose can be a powerful deterrent to tapping the money for other uses. Online banks allow you to set up multiple sub-accounts at no extra cost, and each one can be given a name: vacation, property taxes, new car fund, holidays and so on. The names make you think about what you’re really sacrificing when you spend the money thoughtlessly. You may not be able to rename your employer retirement fund, but you often can input nicknames for IRAs and other brokerage accounts.
4. Use an App
Digit analyzes your checking account transactions, then transfers money you won’t miss into a Digit savings account. Acorn does something similar but looks across all your accounts and invests the spare money. Bank of America has a program called Keep the Change that rounds up debit card purchases to the nearest dollar and transfers the change into your savings account.
5. Lock it up
You should keep at least $500 cash easily accessible for small emergencies. Beyond that, consider creating some barriers to accessing the money. Certificates of deposit can be a good option for savings accounts since you pay a small penalty if you break into them early. If you’re tempted to cash in retirement funds, remember that taxes and penalties typically will equal 25% to 50% of any withdrawal.
6. Save your rewards
Use a cash-back rewards credit card for your expenses, pay the balance in full every month and regularly transfer the rewards to your savings account or IRA.
7. Divert Money
Every time you cancel a subscription, disconnect service or pay off a debt, divert that monthly payment into savings.
8. Bank your windfalls
Define a windfall broadly as any extra money that lands in your lap: rebates, bonuses, refunds (including your tax refund). Carve out 10% to spend any way you want and then save the rest.
9. Make it a game
There are a lot of folks who save every $5 or $10 bill that wanders into their wallets. Others stuff every $1 bill they get into a change jar at the end of the day. Every month, feed the green to your savings account. Some people even hide money in coat pockets in their closet during warm weather so you forget you have it.
10. Save your raise
Got a 3% raise? Boost your 401(k) or IRA contribution by at least 2%. You’ll get a little extra in your paycheck while putting most of your raise to work for your future.