If you?re living paycheck-to-paycheck, and struggling just to get by each month, that situation won?t improve until you reach the point where you have a cushion to back you up. You might think that the pressure would be eased by an additional income source, but the problem with higher income is that in a short time it tends to get swallowed up by Lifestyle Inflation – the more we earn, the more we spend. The better way is to starting building a nest egg, a source of savings that will put some financial breathing room in your budget.
Some financial types recommend paying off high interest credit cards before beginning a serious savings account. They cite math equations pointing out the numeric absurdity of carrying high interest credit cards (13% or more) while earning close to nothing in interest (1-2%) on savings. On paper, backed up by numbers, this looks very compelling.
But I disagree. Completely. Life is not a math equation! You will not wean yourself from credit cards until you learn to live without them! And you won?t be able to live without them until you become fully self-financing. That will mean living at least a little bit beneath your means and having a pool of savings to tap for the things you now charge on credit.
Building your nest egg: Filling an empty bank account
Sell your stuff. Most of us have garages, basements or spare rooms overflowing with stuff we seldom or never use. Sell as much as you can. Take the better stuff, those items small in size but relatively high in value, and sell them on Ebay (see Marsha Colliers? Starting an Ebay Business For Dummies if you?re unfamiliar with the process.) Everything else, sell through Craigslist or a garage sale. You?d be amazed the ?junk? you have that someone else might be willing to pay a few bucks for! You can probably raise several hundred dollars doing this.
Sell your BIG stuff. Selling stuff usually isn?t a big deal, but selling big stuff is where things get tough. By big stuff, I mean a second car (if you can get by with one), boat, motorcycle, ATV, camper or even a second home. If you?re struggling with finances and you?re serious about getting out from under, anything that isn?t necessary to your survival has to be fair game. Ask yourself which would give more peace of mind, the big thing or an equivalent amount of money in the bank? My money is on the bank; get your financial house in order, and you may be able to buy a bigger, better replacement later.
Bank a bonus. We all have almost limitless needs and wants for our money, and that will never change. But what has to change is your determination to take control of your finances. Since you?re accustomed to living on your regular paycheck?even if it?s a tight squeeze?when you get a bonus, immediately deposit it into your savings then forget you ever had it. Doing without some of your income is the only way to become a regular saver; that?s often easier to do with income windfalls. The sudden boost in your bank balance should also be a great motivator to keep the cycle going.
Take a part time job?temporarily. While it would be admittedly difficult to work full and part time jobs simultaneously for an extended period, doing it for a few months might be very doable. Get a seasonal part time job, working it just for a few months so you can juice your savings account. The trick is to continue living on your regular income while putting the checks from the part time job straight into the bank.
Make minimum payments on credit cards and redirect the extra to savings. A lot of financial people advocate making more than the minimum payment on credit cards as a way of accelerating payoff. That makes abundant sense, but if you?re looking to build a savings cushion so you don?t have to rely on credit in emergencies, it might be better to make minimum payments on the cards, directing the extra that you would pay into the bank. This isn?t a long term plan, but only something you?d want to do until your bank balance reaches a level at which tapping the credit cards would no longer be necessary.
Forego some luxuries until your savings reach a desired level. Often, our money isn?t finding it?s way into our bank accounts because we have some expensive hobbies and past times. Try giving up your golf game for a few months, canceling some memberships you have, or going cold turkey on buying new computer games. We?re not talking about cutting necessities here, but preferences. This isn?t forever, but in a few months time you can probably save several hundred dollars without even leaving your house! If you?re bored, just think about how much more you?ll enjoy your golf game when you?re back out on the greens playing, knowing you have money in the bank. Is that worth waiting for?
Go on a spending diet. This is a variation of the suggestion above, only you?re not targeting any specific outlays. Look at your entire household budget, and decide to cut your expenses across the board for a few months. If your household budget is $4000, and you can cut it by 10%, you?ll save $400 for one month, $1200 for three. You can cut some expenses less, others more, but the key is to hit the overall target.
Take on a side project or contract job. There are all kinds of jobs we can take on depending on our talents. You can take on special projects at work, or contract for another company on the side. You can cut a neighbor?s lawn for the season or paint a friend?s house for less than a painting contractor would charge. You can tutor others in subjects you?re strong in, teach English to immigrants or offer instruction in a sport or instrument you play. Inventory your skills to determine what you can do here; everyone has skills in one or more areas that they can sell to others.
Any one or a combination of the above would enable just about anyone to accumulate a few thousand dollars in just a few months. If you?ve never had a decent sized savings account, you might feel great liberation at seeing a balance sufficient to cover your living expenses for a month, or two, or maybe three. I?d be willing to bet you?d be a little less concerned about your pile of monthly bills and you?d be sleeping better at night too.
Once you get a few thousand put away, you?ll begin to sense hope in your finances. You can then begin to build on that hope, first by continuing to save out of your regular income, even if it?s just a little bit, and also to resume paying extra on your credit cards. It?s amazing how much more quickly credit card balances go down when you aren?t adding fresh charges to them.
In short order, you?ll begin to feel some control over your finances, and maybe even begin to envision?prosperity!
How are you building your nest egg?
High interest credit cards are bad, as is not having a savings account. But I think that you should wean yourself from credit cards while building up your savings. This way you become independent faster.
I agree with the points about monetizing the stuff you have around the house and are not using. Bikes, golf clubs, etc. I think you should use the same concept as for clothes. If you haven’t worn it in a year, you won’t likely wear it in the future.
Even if you don’t sell things, cut expenses or take a temp job to earn more money, you should at least open an account that is ready to receive funds. Open a high yield savings account with no fees and put $10 in it. You’ll be surprised how money comes up and can bring that balance up over time.
Katy, I agree. The most important step is to get started–right where you are–then build on it over time. Beginning is half the battle if you’ve never done it before.
Totally agree Kevin! If you wait until outside conditions are just right you’re gonna get cooked in the squat (as Ziglar would say). Getting out of debt is as much an emotional will to win as it is know how. In fact, I just wrote about that last night on my own blog.
Thanks for the encouragement and the practical ways to get moving! Love it.
“You will not wean yourself from credit cards until you learn to live without them!” I could not agree more Kevin. I remember when I was climbing out of credit card debt, the individual helping me to formulate a plan told me to start saving and it seemed so counterintuitive at the time. They told me to build up $500, then $1,000 and go from there…all while paying off debt as well. I am so glad I did it and would encourage it to anyone else.
Hi John – That’s one of my strongest personal convictions. If you don’t save money, even if you pay off all of your debt, you’ll still be broke! That’s the reason you went into debt in the first place. Until that’s adddressed, nothing will get better.
I completely agree with you. The biggest part is just getting started. Once you start seeing your bank account growing, it’s like a game – you just want to keep “winning”. Plus, it gives you this sense of security and comfort to know that, even if the world is collapsing, you’ll be able to survive till things work out again. Peace of mind – no number of iPods, iPhones, laptops, vacations, and spending money you don’t have on crap you don’t need will ever come close.
YES! I think what’s been lost over the past few years is that the ability to save money has historically been a very real survival skill. People saved money (or food, etc) during the productive seasons and years so that they could survive the lean times. Today, with credit, few people think of savings in this way. They may see it as desirable, but not critical. I think we need to go back to savings as a survival skill.
2. Reduce your debt. You can reduce your debt by making larger-than-normal payments to your credit card and student loan bills. When you only pay the minimum amount due, you pay more money in interest in the long run ? and it takes longer to pay off the credit card or loan. Even paying just a little more than the minimum amount due could shave off several hundred dollars, depending on how much you owe ? not to mention a few years ? from your total balance.
Hi Keven – Yes, but only after you’ve saved up enough money that you’ve successfully broken the addiction to credit. And of course, once you start paying down (and paying off) you’re debts, you’ll have even more money to put into savings.