- By paying myself first, I was able to save $5,000 for my emergency fund within a year.
- I socked away $400 a month from my paycheck, plus “extra” money from side hustles.
- Auto-saving made it painless and easy to save on a regular basis.
- See Business Insider’s picks for the best high-yield savings account »
When I got my first “real” job after college, editing horoscopes for an astrological publisher, I got into the habit of paying myself first, a popular savings strategy often touted by personal finance experts.
Practically, that means that before I spent any of my paycheck, I socked away a bit of cash toward my money goals, such as an emergency fund and a short vacation. It was a simple way to make sure I was making headway on my emergency fund.
I created a basic spending plan
First, I made a budget to see where my money needed to go. At the time, my take-home pay was about $1,800 a month. And as the rent for my studio apartment in West Los Angeles was about $700, that didn’t leave a ton of wiggle room for everything else.
My budget needed to account for gas and power bills, phone bills, groceries, and student-loan payments. I realized that, with a ton of discipline, I could live off of $1,400 and tuck away $200 every two weeks, or $400 a month.
I was frugal to the core
As I had only $700 a month after rent and my savings to spend each month, I had to be mindful and prudent with my spending.
I was one of those enthusiastically frugal types who strung LED lights and showered by candlelight to save on electricity. I also rarely went to the movies, checked out DVDs from the local library, and looked for free concerts instead of paying for tickets. I bought the same staples from Trader Joe’s or bought only food that was on sale at Ralph’s.
I rarely bought any nonessentials. If I did buy something, it was heavily discounted, used, or picked off the sidewalk. I bought a used bike on Craigslist for about $80 and an oak side table from a yard sale in Beverly Hills for $20.
I set up auto savings
I had a day job and a steady paycheck, so I opened a separate account for my emergency fund and set up automatic transfers of $200 every two weeks. This took minutes but saved me a lot of inner turmoil.
After setting my savings on cruise control, I didn’t have to toil over whether I could afford to save. I’d be saving without having to give it a fraction of thought or effort. I didn’t have to fret over whether I could afford to spend $10 and splurge on that fancy cheese at Trader Joe’s or whether that money would be better put toward savings.
I was aware of the simple fact that I had only $700 to cover all my expenses in a month and that I couldn’t spend any more than that.
By setting ahead aside that money each paycheck, I saved $5,000 within a year.
I saved all my ‘extra’ money
While I saved the same amount from each paycheck, the amount I saved each month wasn’t always the same. That’s because I also squirreled away “extra” checks and money earned from side hustles or cash I received in red envelopes from birthdays or from relatives at Chinese New Year.
I proctored tests at a nearby university and pet-sat for friends for extra cash. While I didn’t earn a ton of money that year from side hustles — about $1,000 — every little bit I made went straight into my emergency fund. Once I hit the $5,000 mark, I focused on saving for fun goals, such as getting scuba-certified and taking a solo trip to Seattle.
While I got there slowly, I was able to save $5,000 for my emergency fund by paying myself first, setting up automatic savings, and committing to saving any extra money earned from side hustles.
Disclosure: This post is brought to you by the Personal Finance Insider team. We occasionally highlight financial products and services that can help you make smarter decisions with your money. We do not give investment advice or encourage you to adopt a certain investment strategy. What you decide to do with your money is up to you. If you take action based on one of our recommendations, we get a small share of the revenue from our commerce partners. This does not influence whether we feature a financial product or service. We operate independently from our advertising sales team.
Source: Read Full Article