How can I save money when I don't have any left over at the end of the month?

Question

I'm 21 years old, living in a big city (like New York) an expensive crowded city, I am a programmer and I'm not living with my parents and I rent a home here with a friend and ... .

I calculated these numbers: My salary is $5,800 and I have to pay 17.5% ($1015) of my salary for the home rent; And I spend 8.16% ($473) of my salary for transportation (taxi, bus, subway...); I spend 4.39% ($254) on weekends and about $580 (about 10%) for food (Thankfully because of some reasons I should not pay much for food)

Now as you see, I spent 40.05% of my salary now.

I also have some loan and duties, I'm not from a wealthy family, each month I should send 22.5% ($1305) of my salary for my parents! and 10.3% ($600) for a loan.

According to calculation until now (above) I just spent ~72.85% ($4,225.3) of my salary and I just have around $1575...

I also pay/spend for friends, the internet, play & joy, cloth, gifts, book, etc. I can say I spend ~90% of my salary and maybe you can't believe but last month I just had ~1.5% (around $87) of my salary at the end of the month in my bank account!

That was my life financial calculation, I have no idea what should I do, I can't save anything!

I read "Rich dad, poor dad" it is really me, I mean the poor dad! Working for money, always following it, I don't know how can I make a big change and make more money or at least doing something or investing on something to make more money and have more interesting activities...

Answer 1

There are only two ways to increase your savings:

• increase your salary
• decrease your spending

You are young, and both of these are likely to spontaneously happen - you will be promoted and get raises, and your loans will be paid off, removing the loan payment. It would seem that you need only to wait a year or so, and there will a lot more than $87 left over each month, and your savings will grow almost without any action from you. But somehow, that is not what happens in real life. As people get older they "need" more than they did before (larger home, more expensive "things", etc) and they never manage to get around to saving. So it's great that you are wondering how to do it. But you are not truly making it a priority.

You mention that you

also pay/spend for friends, the internet, play & joy, cloth, gifts, book, etc.

And this armwavy entirely optional spending is the difference between 72.85 (such precision!) and 90% of your salary. In other words it is 17-18% or more than your rent. Think about that for a moment. Every month you spend more than your rent on friends, play, joy, books and good old etc. If you were to cut that in half, you could save 8 or 9% of your salary. Maybe after your next raise you can get that up to 10%.

How can you cut that optional "fun" stuff in half? Well, I don't know, because I don't know what it is, and I suspect you don't either. So track it, for a month or two. Are you getting takeout food or coffee every day? Are you always the one who pays when you go out with friends? Do you eat in restaurants a lot? Do you always wear the latest fashions, buy $500 shoes, pay people to do your nails or dye your hair, buy a new phone every year, have the top end phone plan, top end cable plan, ... You have to know where that rent's-worth of money goes every month. Then you can figure out how to send some of it to savings instead.

In some ways you are in a hard generation. Your parents didn't need to save for their retirement because they had you, and they know you will send money home for them. But you probably don't expect the same from the children you don't have yet, so you have to save for yourself. This is a challenge. If you were saving the money you send your parents, you'd be fine. Yet you don't want to reduce what you send, they need it. Still, people have faced bigger challenges and overcome them. Start by understanding where your fun money is going, then look at how to send some (aim for half) of that to savings instead. You won't regret it.

Answer 2

The principle to follow is called "pay yourself first". Have your savings deducted from your paycheck before it hits your checking account. You spending will change to accommodate the reduction. If you have a 401(k) available from your employer, start saving some money via that. If not, figure out a way to have something moved out of your checking account to a separate savings account when your paycheck hits. Then as you get raises, up the amount of automatic savings by half of the raise. You will find this hurts less than you think and it will let you build an emergency fund, which is the first thing you need. When the emergency fund is 6 months of normal spending, then you can start to invest.

Answer 3

Your first problem is looking at these as monthly expenses rather than looking longer-term at how to remove the expenses. You have a $600/month loan, but what is the interest rate? If you paid that loan more aggressively it would free up 10% of your income, but you can't pay the loan aggressively if you don't have an emergency fund. You need enough cash-flow to take care of emergencies so you don't incur more debt on less advantageous terms.

The way you describe the problem, it appears that you don't know where all of the money is going, so the first step is to track all of your expenses and formulate a budget. The budget is a plan on how to spend the money for next month. At least 10% should be money you are saving for a short-term emergency fund. Another 10% should be money you are saving for retirement.

Until you have 6 months of expenses saved for your emergency fund, you need to skip luxuries like taxi rides and maybe you need to reduce the amount you send home. 22% is a large amount and unless your parents are using that money to become independent (so that they won't rely on your contributions forever) it will only prevent you from becoming wealthy enough to really help them later.

Only you can determine what can be cut from your monthly expenses--but if you want to save--spending less is required.

Answer 4

I added the tag 'budget' to your question. A detailed budget is the ideal tool for someone in your situation. And the details you offer indicate to me that's exactly what you've done. This first step is out of the way.

Our (US) Vice President has a saying "Don’t tell me what you value. Show me your budget and I will tell you what you value." In this light, I suggest you consider each and every item in your budget. With $87 left this past month, consider how cutting back a bit and finding a way to not spend another $45, less than 1% of that budget, will increase that savings over 50%.

Every item can be lowered. If you took a cab, why not take public transportation. For cabs, can you car-pool, and join up with coworkers to share the ride? Can you downsize the apartment or get a bigger one but with a roommate? I've seen people do this. They go from a tiny one bedroom to a larger 2 bedroom that costs 50% more, but they are just paying half the rent. They also save on utilities, internet, etc. When I analyzed my food budget, I calculated $10/person per day. Can you cut back restaurant meals or takeout food? Sorry, not 'can you', but 'are you willing to'?

Last, there are unlimited way to earn more money. You might not get the $35/hr you make at your day job, but just $15/hr is still $120 for a weekend shift. 2 of those a month can help you kill the debt, and gain some pocket money. A fellow blogger was in IT, but in a tight budget situation like you. He "delivered away his debt" by working for a pizza shop. Simple to do, but he had a goal, and quit when the debt was paid.

Answer 5

According to your numbers, you just stated that you spend approximately $1500 in discretionary expenditures per month, yet are unable to save.

I fully realize that living in a big city is usually expensive, but on your (presumably after-tax) salary, I think you can easily save a substantial portion of your income.

As others have already noted, enforcing saving of a significant portion of your discretionary income is the most obvious step. It's easy to say, but I suspect that if you are like most people who have difficulty saving, the psychological impact of quitting your previous spending habits "cold turkey" is likely to be very harsh, all the more so if you have an active social life. You may find yourself becoming depressed or resentful at "having" to save. You may lose motivation to work as hard because you might think that you're putting away all this money for the distant future, whereas you are young now and want to enjoy life while you can.

It is in this context, then, that I looked at your other financial obligations. Paying $1300/month to your parents is a lot. It's over 20% of your after-tax salary. You do not specify the reasons for doing this other than a vague sense of familial duty, but my recommendation is to see if this could be reduced somewhat. If you can bring it down to $1000/month, that $300 would go into your savings, and you would psychologically feel a lot better about putting, say, $600 of your own discretionary income into savings as well. Now you have, all told, about $1000/month of savings without severely curtailing your extra expenditures.

But I would start with that $1500/month of luxury spending first. And yes, you do need to view it as luxury spending. The proper frame of mind is to compare your financial situation to someone who is truly unable to save because their entire income is spent on actual necessities: food and shelter; their effective tax rate is 0% because they earn too little; and they usually find themselves in debt because they cannot make ends meet. Now look back at that $1500/month. Can you honestly say that you cannot afford to cut that spending?