5 Ways to Save Now Even if You Don’t Make Much Money

Saving can seem impossible to those living paycheck to paycheck, but it’s doable. Treating saving like a bill, starting small, starting a 401k and using windfalls are all great ways to save even when you don’t make much money.

Saving is absolutely essential. The typical American has absolutely nothing saved. For them, there will be no retirement, just a life of endless work. Saving now, even just a little, can get the magic of compound interest on a consumer’s side, building them a sizable chunk of money by retirement age.

1. See Saving as a Bill

If you’re able to pay your bills, you can generally save.

bill saving saveAccording to the Wall Street Journal, Americans spend about $1.2 trillion a year on things they don’t really need. Non-necessary spending makes up 11.2% of consumer spending. The list includes things like candy, alcoholic beverages, gambling and jewelry. Other items that aren’t absolute necessities are Starbucks coffee, the latest flatscreen TVs, cable subscriptions and higher-end smartphones.

Many people pay bills and then spend what’s left over on things that are really nice to have and could even be classified as strong wants but not actual needs. For these people, it can feel like they’re always strapped for cash and they don’t have a cent left over for saving. Treating saving like another bill can really help make it a priority that gets addressed every month.

save saving bill moneyAlong with bills for electricity, water, heat and other utilities, consumers who want to be savers can create an imaginary bill labeled, “savings” and give it a number like $500, $200 or $100. Paying this bill first every month can make sure it gets done before the new TV and the nights out at Buffalo Wild Wings and that great pair of shoes and the trip to Cancun.

2. Start Small

save little money start smallPeople who live paycheck to paycheck might feel like they have so little to save that there’s no point in trying to save anything at all. However, even someone who only saves $20 a month starting at age 20 and keeps up the habit will wind up with a pile of money to show for it if they live long enough. Investing $20 a month at 8% will build a dinosaur-sized nest egg of $220,000 by age 75.

Related: How to Start Saving for Retirement the Easy Way

Now imagine what someone who contributes more than $20 a month could earn. $30 a month invested at 8% leads to $330,000. $50 a month creates $550,000. $75 a month returns $825,000.

Amount Saved MonthlyAmount by Age 75

Plus, starting small builds the habit. Someone who starts small and then gets a promotion will be more likely to boost their monthly contribution. They’ll ramp up their eventual reward exponentially. Someone who doesn’t start small is more likely to have saving “slip their mind” when they do get that promotion or raise.

3. Start a 401k to Save

401k contribution limits401ks are like magic.

401ks are savings plans, usually set up through an employer, that let employees save money tax free. Any contributions to a 401k get deducted from the employee’s annual taxable income. Many employers kick in matching funds to boost employee savings in 401ks. The best part is, the money comes straight out of the employee’s paycheck before the employee even sees it, so there’s no temptation to spend the money.

Related: Traditional 401k Contribution Limits for 2014 and 2015

All 401ks are different, but an employee that puts $100 a month into a 401k might see another $750 per year from her boss. If that employee started her 401k at age 20 and invested the money like the other savers above, she’d have $814,000 by retirement age. If she left that money invested, she’d have about $1.8 million by age 75. That’s $700,000 more than if she invested the money on her own without the 401k.

4. Use Windfalls to Save

4 ways to get your tax refund sooner this year.

4 ways to get your tax refund sooner this year.

Those with too little money to save can still make it work if they make use of windfalls. Tax refunds, items returned to the store and a raise at work all make great opportunities to boost savings.

The average tax refund is $3,120 according to the IRS. Someone who sticks that money straight into savings has done as much as someone who saves $260 a month. Starting at age 20, that money invested at 8% would be $2.8 million by age 75. That’s just from investing tax refunds. Left invested, that pile of cash would earn $225,000 every year in interest alone.

People who get a raise at work should think twice before raising their standard of living. Just a 2% raise on an annual salary of $35,000 could yield $58 a month in the savings account. By age 75 that’s worth $638,000.

Related: What Should I Do With My Tax Refund?

5. Start an Automatic Savings Plan

Most banks offer some kind of automatic savings plan. An automatic savings plan takes the “see it as a bill” idea from the top of our article one step further. Automatic savings plans can be set up online to transfer money regularly from an account holder’s checking account to a savings account. For example, a woman who wants to save $200 a month can set up the Capital One 360 Automatic Savings Plan to move $100 from her checking account into her savings account twice a month. She can set the automatic plan to make the transfers two days after her paycheck gets direct deposited into her account, so she hardly even notices the money was ever there.

There’s an old Irish blessing that goes, “May you be in heaven a half hour before the devil knows you’re dead.” An automatic savings plan might modify that to, “May your money be in savings a half a day before your urge to spend it even knows your check has cashed.”

For more on automatic savings plans, see our article, “7 Great Bank Tools to Boost Your Savings.”


Number of the Week: Americans Buy More Stuff They Don’t Need – Wall Street Journal

Here’s an Image Every Young Person Needs to See – Money Nation