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I have a very limited income (unfortunately) and have found I am practically incapable of saving. What are the best methods to enforce saving, however still have access to the money if required? Here is a little background on the question:

$750.00 Weekly Income;
$85.00  Weekly Travel Expenses;
$115.00 Weekly Bills (expanded below)

I have no regular "bills" as such, but have the following expenses to cover:

  1. $60.00 Repayment on an ongoing course;
  2. $50.00 Travel Expenses;
  3. Quarterly Rates Bills;
  4. Quarterly Electricity Bills;
  5. Yearly Registration

Of course things such as Birthdays, doctors etc. are not factored in. Now understandably there is a requirement to have a goal to save for. My current goal is this:

Save $5000.00 per 6 months, with $10,000.00 per year.

Now this is very easy in my circumstance to achieve, however I am a habitual spender. I lack any form of control when it comes to impulses. This needs to be corrected. This is the whole "patch the current issue and ignore the cause" question at the moment.

How would one go about forcing saving of $X per paycheck, but still have access to the funds in an emergency? I have already attempted opening a separate bank account to add funds too, however find I dip into it when I find the next "toy" to get. Recently it was a $6,000.00 gaming rig (of which I love!).

I have looked at the options of opening a term deposit, however this prevents me from touching the cash and also requires $5,000.00 initial deposit; after this spending I am broke. Can anyone advise of a safe method to use to restrict my spending? Is this on topic?

  • Can you avoid running a negative balance on a credit card? If you can, then the card could serve for any immediate emergencies, and some investment with a few weeks notice to withdraw the funds could serve for major emergencies. – Eugene Ryabtsev Sep 18 '15 at 15:56
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    My wife has similar problem and she used to solves it by taking on debt to purchase a semi-liquid asset (real property) and then striving to repay it. I deem it rather aggressive, but it worked. She had a credit card, just in case, which she never used. – Eugene Ryabtsev Sep 18 '15 at 16:05
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    I will just point out that your are making $39,000 a year, which is nearly the median household income in the US ($43,585 according to 2013 Gallup). I know cost of living varies, but this is hardly 'very limited income'. It sounds like your main problem is impulse buys of cool toys. It is difficult to not spend money when you have enough for cool stuff, but it's really as simple as self control. Just do what you want to do with your money, because it's yours. It sounds like what you really want is to save it, which is great! – Dan Sep 18 '15 at 17:23
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    You seem to be in need of a self-help book, not a financial advice site. It's for all intents and purposes impossible to set up a system which will stop you from spending money yet still allow constant access to the funds because there will always be a weak link in the system (i.e. you). – Lilienthal Sep 19 '15 at 14:33

10 Answers 10

5

There are several tactics you might employ to help the situation. You have two options, one is to increase your income, the other is to reduce your expenditure. Paying off debt will also help but that may not apply to you.

Most people find it easier to reduce expenditure, so I will explain that first of all.

  1. You need to budget, weekly or monthly, if you are paid monthly that is probably best. Go through your bank account and put into a spreadsheet, or an app etc, all your monthly expenses, bills and so on. Make sure you have lines for ALL expenditure, including food, fuel and any impulse buys you make. You can do this for the past months and then do the same for the upcoming month.

Then make sure you track your actual expenditure agains the budget, check it daily and make sure it is accurate, if you spend some money you didn't budget for then mark that down and make sure you budget for it going forward.

Most people are surprised at how much they are actually spending, especially on trivial things like coffee, lunch at work etc. You will then find you can start to reduce this expenditure, maybe by bringing lunch to work, skipping coffee every other day etc.

By doing a budget you can reduce your expenditure and hopefully have some money left over to save - put a line in your budget marked savings (ideally on the day you get paid so you don't spend it)!

If you ned to save $x by Y date then work out how much that works out in a month and put that into your budget, if you haven't got enough spare to do that then onto stage 2

  1. Look at your expenses and see if you can reduce them - for example if you have a mortgage, can you get a cheaper deal elsewhere? Can you get a cheaper cell-phone deal? Cheaper insurance maybe? There are many sites online that let you compare this type of thing, almost every line on your budget can possible be reduced. For example I recently changed my cell-phone and saved $30 a month on that alone.

With regards to increasing income, the obvious way is to do some overtime at work - can you do that?

Alternatively you can get a part-time job, maybe a hobby that pays money? I personally enjoy building web-sites as a hobby and I get about $20 a month from advertising on those, it's not much but it adds up over time.

Finally how to actually save, what methods are there?

Lots of options here, personally I buy shares with my savings, making sure I pick stocks that are currently cheap - this is quite risky and may not suit you but it works for me as I don't sell the shares until I actually need the money.

Other options are regular savings accounts that pay a bonus after you've had the money in for (usually) 12 months etc. They tend to pay a bonus at the end so you are incentivised to not touch your cash but you can get it out if you really need it.

You can also work out how much "spare" cash you have monthly and then give yourself an "allowance" each month that you can spend on impulse items, but make sure you stick to that.

Good luck!

  • Just as a separate not to OP and piggybacking from your answer: Just keep in mind that with your current goal, you'll need to save ~$210 per week (rounded). A lot of the time I work that into my expected expenses as a "pre-expense". You won't be a tempted to spend money if you don't consider that money as available. – Broots Waymb Sep 21 '15 at 21:59
  • I'd like to point out that while difficult, education and training for a different role or industry can lead to a massive increase in income, depending where you are now. Lots of factual info out there on high earning and in demand skill sets and tons of free or inexpensive training. – Dave Sep 24 '15 at 23:58
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You can't both enforce saving and have access to the money -- from what you say, it's clear that if you can access the money you will spend it. Can you find an account that allows one withdrawal every six months but no more, which should help to cut down on the impulse buys but still let you get at your money in an emergency?

  • Mike - definitely an option. I would preferably want to keep one bank for ease of maintenance. I can see the saving account I have being one of the better option. I will need to investigate restricted access. I cannot access it at an ATM, but I do transfer between accounts. I will look into this! – DankyNanky Sep 19 '15 at 5:58
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After more than 30 years of married life the only thing that has worked is to partner with someone who is your opposite. I am a saver, my wife is a spender. Each pay period we establish a budget. Only those things to which we both agree go into the budget. If we violate the budget the other one holds the violator accountable.

Be sure to put some 'slop' into the budget, you cannot perfectly predict the future. The budget can, and will, change throughout the pay period, but only if both agree to the change.

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    I'm curious, how do you "hold the violator accountable"? – Michael Sep 18 '15 at 17:04
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    All this is done by agreement. When you violate the budget this pay period, then you have less of a say in the budget for next pay period. – Jack Swayze Sr Sep 18 '15 at 18:34
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    As I am a saver we have emergency funds. The agreement we have that is working is that nothing goes into the budget unless both of us agree. So we live below our means. If you spend only 50% on expenses that repeat, 20% on variable expenses, 10% to short term savings, 10% to emergency savings, and 10% to retirement savings then when unexpected things happen you will have the money to pay for them. – Jack Swayze Sr Sep 19 '15 at 0:31
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    Short term savings is for things that we forgot to put into the budget. An example is trash. We have to pay the trash company every three months and it is easy to forget. Emergency savings are only for emergencies. A trip to the hospital is an emergency. A trip to the Bahamas is not. Retirement savings is only used after you retire. You don't borrow against it. – Jack Swayze Sr Sep 19 '15 at 1:10
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    It sounds like you are partnered with a saver and you are a spender. I wasted nearly 20 years of my married life in a vain attempt to make her into a saver. That always failed and led us to misery. I hope you can learn from my mistakes and come together in agreement with your partner like my wife and I have. It really solidifies the union we share and removes a lot of anguish as we now have stable finances. – Jack Swayze Sr Sep 19 '15 at 6:56
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You can change your withholdings (IRS form w-4) to take additional money from your paycheck and get it back when you file a refund.

Maybe you could buy a gift visa, place it in a bag and freeze it in a tub of water. That could help put the impulse on ice for 24hrs.

It is natural right to enjoy the money you work for. Be sure to include some enjoyable spending in your budget or you will be miserable.

When breaking a habit, try to do one thing different, no matter how silly it is. Anything to bring your attention back to the big picture.

5

I am in a different situation, because I earn more than I spend, but I have found that I need to make the money inaccessible if I want to really avoid spending it. I used to just throw my paychecks into a high-yield savings account, but eventually the balance was large enough that a "large purchase" didn't seem like "that much" (because I would have had so much left in the account after the purchase). It was way too easy for me to spend way too much.

Now, I invest my savings automatically. The obvious benefit is my money has a much higher growth rate than a simple savings account (especially with fed interest rates so low). I invest most of my savings in 401(k)/IRA retirement accounts, where there are severe penalties for withdrawing prior to retirement age. Then, I invest a significant portion to a regular brokerage account, where the money is invested in stock and bond funds. This money is accessible within a few days of whenever I need it. The remainder of my savings goes into a savings account as cash I can get to at any time. All 3 accounts grow with every paycheck (market fluctuations aside).

This 3-tiered system helps me to categorize my savings as "Never, ever touch" (retirement accounts), "Touch, only if I can wait 3 days and am willing to pay taxes" (brokerage account), or "touch whenever you need it, with no penalties" (Savings account). If my savings account grows too much, I'll move money from there to the brokerage account (where it has more growth potential). The longer my money is invested in the brokerage accounts, the less taxes I'll need to pay when I sell/withdraw the funds, so that's even more incentive for me to keep those funds where they are.

I have credit cards, so in my opinion, having to wait 3 days for funds from my investment account to become accessible is considered "accessible in an emergency," because my credit cards can be used to cover a large purchase for 3 days, and as long as I pay it off within the grace period, there's no interest charged.

tl;dr investing is probably the smartest way to both grow your money and prevent the urge to spend it right away. My advice is to start with a 401(k) or IRA as soon as you can, since the younger you are, the more time until retirement that your money has to compound. Investing $100 more a month can mean hundreds of thousands of additional dollars in your account when you're ready to retire.

  • Michael - what a wonderful post! This gave me alot of help. I am not too familiar with a 401k (I had to do some research), I do think it might be best for me to invest in a brokerage provided by my bank. – DankyNanky Sep 19 '15 at 6:08
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If you are just trying to curb impulse spending I'd suggest the following:

1) Set up a separate bank account for your savings - Do not order checks or a debit card for this account.

2) Get your employer to split your paycheck to put the saving amount in the new account (most employers will do this)

The trick to avoid impulse spending is to make it a chore to get at the money. With the above arrangement you would have to physically go to the bank, fill out a withdrawal slip and get cash. This way you still can access the money in an emergency, but it forces you to plan things out better.

  • John - I have attempted this. I have set account but because it's under the same account holder I still have access to the account. – DankyNanky Sep 19 '15 at 6:11
  • You could open the second account at a different bank. – barbecue Sep 19 '15 at 14:28
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I find that when I have to justify why I want something to someone else, I eliminate impulse buys because I have to think about it enough to explain to someone else why it is desirable. Simply going through that process in my own head in advance of a conversation to justify it I talk myself out of a lot of purchases.

I'm married, so I have these conversations with my wife. She is very supportive of me buying things that I want if they will bring value. If I wasn't married and couldn't control my spending, I'd find a good friend or relative that I trust, and I would create a trust with me as the primary beneficiary, and I would appoint a trustee who was willing to sign off on any purchase that I wanted to make after justifying it to them. If I had no friends or relatives that I trusted in that role, I'd hire a financial adviser to fill the same role. Contractually I would want to be able to terminate the arrangement if it was not working, but that would mean sacrificing the legal fees to alter the trust and appoint a new trustee.

  • Nathan - this is a very good idea, and one I may consider. Thank you for this, – DankyNanky Sep 19 '15 at 6:13
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Probably not what you want to hear, but: Open a savings account. Deposit a pre-determined amount every month. Write down what you are saving for in specific detail. Emergencies are injury, sickness, auto breakdowns, bail money, eviction, nasty stuff like that. If you are saving up for something fun, trip to Europe, car, etc. write that down.

Do not take from the account for any other purpose. Avoid taking it out even in lesser emergencies if you can do so without incurring debt. Don't daydream about what you could do with it. It is not for that. It's purpose should be singular. Keep an extra, smaller amount for frivolous stuff in your main checking or a different savings. Use that for impulse buys, and if the impusle can't be afforded by that amount, train yourself to know "can't". I can't buy that, it's not in the budget. Not I shouldn't. I can't.

Good luck!

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Many of my friends turn to me for financial advice, and here's what I always tell them because it's super effective for me... 1) I opened an online bank account with Scottrade for which I did not request a card or checks. I set up direct deposit straight to that account. It would be a complicated pain to take money out of that savings. The only time I did so was to buy my house (which was the purpose of the savings) and it involved a wire-transfer and printing of the form to fill out and faxing it in, etc. I have continued to use the account to save for my second house. I basically completely forget that the account is even there or that I am "missing" a large chunk of my money.

2) It is VERY important to actually budget for spending money to continue to spend on impulse items. Basically allow yourself to spend money on yourself but in a controlled way. Decide a specific amount that you want to put in a separate account that is just for you to spend to your hearts content and have it direct deposit. I find, (and Dave Ramsey also encourages this) that when I know how much money I am going to blow, I feel much more in control and it causes me to not get carried away and blow more than I realized. Take this a step further... Decide specifically what you want to buy for yourself, and label the account accordingly. For example, I decided back in March that I wanted to buy an Xbox One for when Star Wars Battlefront comes out this November. I calculated exactly how much money I would need at that time, figured how many paychecks I would receive until then, and did the math to determine exactly how much I need to direct deposit into an account JUST for saving to buy the Xbox and game. I use CapFed, and I can actually rename the account as it is displayed, so I called it "Xbox fund". Seeing that title, a reminder of what I really want" encourages me to not touch it. What is your goal behind wanting to save money better? What are you saving for? Label your account accordingly so you don't just see it as money, but as progress.

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Another way to look at budgeting: give yourself an explicit "allowance" -- possibly in a separate account -- and if something isn't a clear necessity it must be paid for out of your allowance, saving up first if necessary. You can get those concert tickets, but only if you cut down on expensive meals and toys and other entertainment for a while. You can have anything you want, but not everything and not immediately unless you learn to maintain an adequate balance in this account.

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