Starting With Little Money
The following is a Money Conscious question posed to us by a Facebook follower:
“What is the best way to save small amounts of money? For example, an individual who doesn’t have a large income and is already strapped with monthly bills may only be able to stash away a few bucks; maybe $40. What is the best way to save/invest those few dollars to help it grow?”
Melissa makes a great point. Often, those who struggle financially are the ones who most need to save and invest, but find it impossible. If you have either been raised in a family without an established history of saving and investing or started on your own and did not adopt the habit yourself, starting the process may seem daunting.
How do you start?
Ninety-nine percent of us do some amount of unconscious spending. Even the Debt Free Guys™, from time to time, spend unconsciously. What does that mean? It means we are not paying attention to how we spend. Unconscious spending is like driving through the intersection and wondering after you went through it if the light was red or green. Is it your morning stop at Starbucks? Do you have a habit of hitting the vending machines every afternoon at 2:30? Do you buy a lottery ticket each week? Do you meander through the grocery store in the middle of the week to figure out what’s for dinner, while at the same time you fill the cart with everything but what’s for dinner? Do you, after a couple glasses of wine, find yourself pulling out the credit card after mysteriously landing on Amazon.com?
Our unconscious spending, whether it is $5 here and $10 there, or more, hurts our ability to save. It eats up that $25 to $100 a month that we could set aside in a savings account or mutual fund to cushion ourselves from unexpected events, or to put our minds at ease at the end of the month when we are worried we will run short. The first step is to figure out one or two of your unconscious spending habits and reduce their impact or eliminate them altogether. Reducing your fees on our student loans or personal credit cards is another way to cut back on expenses and then funnel the money into automatic savings.
What do you do?
What should you do with that extra money each month? Our answer: out of sight, out of mind. If you have a habit of anti-saving, then trying to grow your checking account, or keeping a stash of cash under your mattress won’t work now anymore than it has in the past. We suggest sending your money away before spending it today. As we say, #sendB4Uspend!
Set up a separate bank account, preferably at a bank with which you do not have an existing relationship. Choose a bank that you cannot easily get to and an account not linked to a debit or credit card. Choose a bank that lets you open an account online. This can be a quick and easy way to get the account open. Once it is open, you will get a bank routing number and an account number. Save these numbers for future reference.
Set up this account to get electronic statements. This will prevent you or someone in your family from getting the monthly paper reminder that you have $100, $250 or even $1,000 out there to spend. Remember, out of sight, out of mind.
Next, ask your employer how to set up direct deposit, if you do not already know. For many large employers the process can be done online, via the company intranet site or with a paper form. Provide the bank routing number and your account number you saved from the previous step, and then determine the appropriate amount of money to stash away each paycheck. If you can only stash away $10 to $20 a paycheck, that’s fine. Do what you can.
Some of you might be saying, “Well duh! This isn’t new or earth shattering.” To that we say, exactly. Saving isn’t hard, it doesn’t need to be difficult and there are many ways to set aside a little money here and there. The hard part is getting started. The hard part is slowing down the outflows of money and stopping the unconscious spending. We take the tortoise over the hare approach when it comes to saving. Slow and steady wins the race. Open the account, get the money going in and forget about it. This will allow you to build up your balance to an amount about which you can feel good.
When can you start investing? For many who are in a position to only set aside $10 to $50 a month, the initial focus should be on saving. Investing comes once there is savings to cover roughly three months worth of living expenses. That may seem like a lot of money, but it is the ultimate cushion if you have a health issue or job loss. If you are ready to invest, see our article 10 Steps to Simple Investing. If you are not ready to invest there are ways to get a better return on your savings than the paltry 0.25 percent most banks offer these days.
Where should you go?
There are some banks that offer rewards once you have reached or maintained a minimum balance. Study the fine print and avoid fees, but this method can be a way to earn anywhere from 1 to 10 percent on your balance without investing.
Here are 3 checking/savings accounts you can open online.
- US Bank – Although US Bank has reduced the reward (used to be $100) on the account, this is still a sensible way to save and get a reward of $50 when you save $500 over the first 12 months. We like how this bank encourages small savings for the long haul.
- Ally Bank – This account has no fees, plus the higher-than-average savings rate makes it attractive. There are no rewards, at this time. This is a great place to start and then switch to another account with rewards once meet the required minimum.
- Synchrony Bank – This bank has a minimum balance of $50, so save $50 before you open this account otherwise you will pay a $5 monthly fee. This account’s higher-than-average savings rate makes it attractive. In addition, there is a great visual calculator that shows how your balance will grow. Again, there are no rewards, but this could be a good place to start saving and then transfer your account, as mention previously.
If you are ready to start with a higher balance or higher direct deposit, such as $500 per month, then check out some of the offers here.
In a Nutshell
As we mentioned, the key is to get started. Get off the couch, away from online shopping and make a plan. Below are the three steps that you can take to start saving within a few short weeks.
1. Assess your spending over the last two weeks. Look at your bank statements, online account activity and write down what you spent your cash on and determine what spending was unconscious spending. From this, determine what you can reduce or eliminate to find $10 to $100 per paycheck to direct deposit into a new bank account.
2. Open an online account with one of the banks listed below or one you may prefer. Avoid fees, debit cards and checks. It’s, also, best to not choose a bank close to where you live or work. Write down the ABA Routing number (9 digits long) and your account number as soon as you have it.
3. Contact your HR department to set up a $10 to $100 direct deposit per paycheck into your new account.
4. Forget about it, until you have enough to invest.
This is how you get started if what you have to get started with is small. It takes effort and feels like a struggle at first, but you’ll see a hefty balance in no time. Very soon, you’ll be able to invest and really watch your money grow.