Question of the week: My New Year's Resolution this year was to save 20 percent of my paycheck. So far, I've failed dismally--there's never enough left at the end of the month to save! How can I make my savings plan work? --Striving to Save
Dear Striving,
Congratulations on your ambition to join the ranks of the x-treme savers--people who are aggressively stashing away a substantial portion of their earnings each month in order to achieve their dream of financial freedom. When we asked members of the Armchair Millionaire community about their savings habits, we found that there are plenty of people who are regularly saving 20, 30, or 40 percent of their income. A few are saving even more.
But as you've discovered, this sort of x-treme saving doesn't just happen. Here is a sampling of the good advice we got from the community on reducing spending and increasing savings.
Tax yourself. "Upon depositing my paycheck, I 'tax' myself by peeling off an extra 20 percent and sticking it in a separate account. Every two or three months I use my 'tax' account to fund a larger investment." --Ray
Live on one salary. "When my wife and I were first married, we decided to live only on my salary and save hers. This way, when we decided to have children, there wouldn't be much of a financial disruption and we wouldn't be dependent upon us both working forever." --Bryan J.
Make a lot out of a little. "I've never made a lot of money but I do manage to put away about 25 percent of my salary each month when you include 401k/IRAs. My trick? I guess I decided long ago how I want to live (simply) and I just don't need the extra money. So I save it." --Polly T.
Anyone can do it. "Something I have learned along the road to financial education is it takes planning and discipline--and I should know--10 years ago I declared chapter 7!" --Paula
These ideas will just get you started. My checklist has more tips that will help turn you into an x-treme saver.
The Armchair Millionaire's Checklist for Painless X-Treme Saving
Pay yourself first, automatically. Arrange to have money automatically regularly deposited into a savings or investment account, either directly from your paycheck--as with a 401(k)--or from your checking account. Either way, this money will be safely tucked away before you miss it.
Save your next raise. Most people just tend to spend any increase in their income. Instead, whenever you get a raise, commit to saving that amount.
Remind yourself. Leverage technology to send yourself regular reminders about saving. You can set up an email reminder, program your Palm, or schedule an automatic transaction in your personal finance software.
Re-direct debt payments. Whenever you pay off any loan, send the payments you were making into your savings. Same goes for the amount you save by refinancing your mortgage.
Ignore the Joneses. Keeping up with the spending habits of your neighbors or friends is a dead-end street. Live below your means and save the difference.
THE BOTTOM LINE: There are few things that will bring you to financial independence more quickly than x-treme saving. While you may find it difficult to get started, you'll soon find that it's one of the most rewarding--and addicting--things you can do.
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