Basic Financial Fitness: Saving More, Spending Less
It's hard to believe, but it's been over a year since my last installment of Basic Financial Fitness. I've definitely made some progress on my own financial journey since then, so let me share what I've been doing, what's been working, and where I am.
Since last time, I definitely had a period where I was just happy to have enough income again that I could buy things I needed (some) and wanted (lots). The only problem is, is that I often had to charge the items. Sure, I could make the monthly payment, and then some, but it's hard to pay off debt and save money when you're constantly paying new debt. And, paying off debt and saving money has become a priority since I'm now a single mom. So, I've taken some time to do some studying and reflecting on my spending habits and my goals, and here's where I've landed.
1. I, once again, put my credit cards in a time-out.
Unless there's an emergency, I'm only using funds I have in excess after every bill is paid, money has been saved, and needed supplies (like food and toilet paper) are stocked up before I buy anything not in these three categories. This means when my hiking or walking shoes bite the dust, I have to save up to purchase them first instead of charging them. Not only am I making purchases I can afford this way, but I'm not throwing money away on interest rates to credit card companies.
2. I reevaluated how I save money.
I save money religiously every single paycheck. I always strive to "pay myself first" so I have money automatically withdrawn from each paycheck to go into savings accounts I have on the side (in addition to my regular, everyday bank account). This is smart because since it comes out before I sit down to pay bills, I don't miss the money. And, yes, I also have retirement funds that are matched by my employer, along with a couple of self-funded retirement accounts, but having liquid assets is always a good thing so I've been thinking a lot about how to make my money work harder for me.
Because of this, I've been doing some research. One evening, I was watching some videos on personal finance and found out about High-Yield Savings accounts. What the hell?! Why haven't I been saving my money in these all these years? The interest rate of a standard savings account is paltry - it's like a half of a percent. I moved all my savings into three separate HYS accounts and earn up to 1.3% interest, which is much better. More passive income is more money in your pocket without having to work any harder for it.
3. I put myself on a "no spending" challenge.
I started to notice how money can often "burn a hole in my pocket." I pay my bills, I set some money aside, and I have everything I need at home, so why not spend what's leftover, right? Wrong. When I started to look at my discretionary spending, I realize that I waste a lot of money just buying random stuff, going out to eat, or otherwise just blowing money on useless things. Understanding that this is money I could be saving or paying down debt with drove the frivolity of it home. So, I challenged myself to quit randomly spending my money. The challenge is to see how many days I can go without spending money and it's been a wonderful and eye-opening thing. Here are what stands out most about the challenge.
A. I think carefully about every single purchase I'm considering. This has been great as I notice how many things I just don't need to spend money on. This has been a learning tool that has forced me to be more cautious with my money and, in turn, curb wasteful spending.
B. I actually *gasp* carry-over money from paycheck to paycheck, something I've never been able to do, even after I had more money. Instead of just spending randomly, I save my funds and it's nice to see that I have "extra" money each month. This is money I can then save, pay down some debt, or purchase items that are a necessity but cost more - like when my washer died.
C. I have more money than I think I do! I always thought I would be forever living paycheck to paycheck, and while parts of that are still somewhat true for me, I do have money for things I need simply from my salary.
I've long thought that the right mindset can make the difference in many things, especially when it comes to finances. My mindset has certainly shifted in that area since my last BFF installment, and I've taken away from it three core thoughts:
- Do I really need to charge that?
- How can I make my money work for me?
- Do I really need to buy this?
Along with these comes the knowledge that all of these things are related. Challenging myself to go as long as I can without spending money keeps me from making decisions that waste the cash resources I have but also keeps me from charging items I want. And, because I have extra money left over each month, I can find ways to make that extra money work harder for me.
It's amazing to me just how much I've grown and learned in the area of personal finance over the years. I know that it's never too late to change bad habits into good habits, and I'm living proof - even if I am a work in progress.
Have a great week my friends!