It’s only the beginning of the second quarter of 2015, but if you’re some people, you’ve already failed at a New Year’s resolution (or five). One of the reasons so many resolutions fail is that they require that you take an action (or not take action) every single day. Saying “I won’t buy myself coffee every morning” is easy, but if you have to drive or walk by the coffee shop on a daily basis, it’s only a matter of time before your willpower gives out and you’re in line for some caffeinated bliss.
That’s why you experience more success by using strategies that fall into the category of “set it and forget it.” In other words, if you only have to do something once, then you don’t have to worry about a daily inner battle that you’re all too likely to lose. A little bit of effort up front can save quite a bit later. How do you do that? Here’s a simple two-step process for effort-free savings.
Step 1: Determine how much you want to save and work backward.
How much do you want to be putting aside every month, and why? Once you know that, then all you have to do is to figure out how to keep that money from hitting your checking account where it’s likely to be spent.
Let’s say you set a goal to save $200 per month. Rather than having your entire paycheck from your job go into your checking account, set up direct deposit to be split between two accounts. Assuming you get paid twice a month, a hundred bucks from every paycheck can go directly into a high-interest savings account. The rest can be deposited into a checking account normally.
Since the money went straight to savings without having to lift a finger (or get tempted by its presence), you’re forced to budget around the money you can see. Obviously, you can get to your online savings account if you need to access it. However, the pain in the rear of having to figure out how much you need, set up the transfer, and wait for the money to arrive means you’ll give frugality a thought first.
Step 2: Determine your budget categories and reduce fixed expenses.
Okay, so Step 1 ensures that you’re meeting your emergency fund goals without even trying. However, if you’re like most of us, this step will also highlight just how much money you’ve been spending — maybe without even noticing! Now’s the time to figure out what bills can be reduced or eliminated to bring your spending in line with your new income.
Some expenses (rent, cell phone, Internet, cable, student loans) are fixed. If the bill is the same every month, that helps with planning. Other expenses (electric or other utilities, groceries, gas) may vary but usually fall within a fairly predictable range. It’s often easiest to plan around the higher end of the range.
If you’re trying to reduce spending without even trying, the easiest thing to do is to reduce or eliminate fixed expenses. This is because then you’ll automatically benefit from the lower (or nonexistent) bill without having to keep a price book for the grocery store or ask yourself things like “Can I afford this salad dressing?” Strategies for reducing fixed expenses include things like:
- Moving to a cheaper place (or getting a roommate to share expenses)
- Switching to a prepaid or discount cell provider
- Getting a lower tier of Internet service
- Canceling cable
- Talking to your loan servicer to see if there is another student loan repayment option that could save you money
So this plan isn’t entirely effort-free, you have to put in a tiny bit of effort up front by adjusting your direct deposit and giving your recurring fixed bills a once-over. However, once that’s over with, you can enjoy effort-free savings month after month!
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Article source courtesy of Georgie Miller of MoneyFool.com.