How To Stop Relying on Willpower and Finally Start Saving Money
We’ve all been there. You start the month with big plans to seriously reel in your spending and finally start saving money, but by the end of the month, you’re searching under the couch cushions for enough change to keep from overdrawing your checking account.
Stop beating yourself up about not being “motivated” enough to change your money habits.
Motivation and willpower are not endless resources. There is nothing wrong with you if your willpower tends to come up short when you are working towards a big goal. The key to financial success is setting up your system ONCE, so that you can automatically work towards wealth without ever having to think about it again. An automated money system allows you to stop relying on willpower and finally start saving money.
This truth is why I look to David Bach and his book, Automatic Millionaire, for financial advice, over the popular Total Money Makeover by Dave Ramsey. Both are motivating and share great tips, but David Bach recognizes that it is not fun to live in constant guilt and worry over every dollar that you spend. The key is to set priorities and establish a system and a guilt-free spending plan that automatically sends your money where it needs to go to reach your goals.
Remit Sethi has a good perspective on guilt-free spending as well – he explains in I Will Teach You To Be Rich that it is up to each of us to determine what our “rich life” will consist of. Think about what matters to you and how you REALLY want to spend your money. Be ruthless in cutting expenses on the things that are not on your list of things that matter, so that you can spend guiltlessly on the things that are. It is easy to get caught up in the idea that we must keep up with the Joneses, but the Joneses are SO overrated. Stop valuing yourself by the model of your vehicle, the brand of your purse, and the cost of your vacations. Set your priorities and send your money there to create the best life.
The key is to put your money where it matters AUTOMATICALLY, so that you don’t have to make as many decisions every month and rely on your willpower to reach your goals.
Step One: Determine what is most important to you.
Set your spending priorities and send your money where it is most important. My main money goal has always been to “not have to worry about money,” and I think this is a big one for all of us. Nobody wants to lay awake at night wondering how the bills are going to get paid, or what will happen if that little mistake we made at work is going to get us fired. This means that saving for retirement and building up my emergency fund are top priority. It is also important to me that my dollars go towards my family’s future, our health (sorry DR, we aren’t living on beans and rice), and creating memories as a family. Celebrating Christmas, taking vacations, and saving up for a boat are all things that I want my money going towards each month. I also want to give back to my community on a regular basis. Your money priorities might be very different from mine, and that is great! All that matters is that you determine what is important to you and start sending your money there rather than towards the things that you think you are “supposed” to want. Spending your money should make you happy!
Step Two: Pay yourself first! Set up automatic transfers to your savings and investment accounts.
If you’re confused by the concept of “paying yourself first”, you’re not alone. I used to read this advice and wonder who was going to tell my mortgage company that my payment would be late this month because I had paid myself first. The answer is nobody, and the reason that this all works out is that when you pay yourself first, there is less money available for expenses. In a worst-case-scenario where you run out of money, you’ll have to get creative and scrappy to pay the bills, which you are not as likely to do if you have the alternative of just waiting until the next month to start saving. However, what is more likely is that you will not notice the income reduction as much as you think you will.
Ideally, your savings and investments will come straight out of your paycheck, next best thing is to have them transferred out of your account on the same day that your paycheck is deposited. The money that is left AFTER your investments is what you have available to spend and pay others. Adjust your life to fit this level of payroll. Don’t wait until your next raise, your car is paid off, or you finally get yourself to stick to your budget to start saving. Set up your accounts with automatic transfers now. You’ll never have to rely on willpower to make these investments happen again.
Start investing in your future.
Saving for retirement is a long game and the sooner you start, the better. I was just browsing the Vanguard website and saw this reminder posted: “Remember, you cannot take out a loan to fund your retirement.” How true is that?! If you don’t plan for retirement, you either won’t have a retirement at all or your quality of life will change drastically in retirement. If you are not investing for your future at all right now, get started immediately, even with the smallest amount possible. If your employer provides a 401(k), 403(b), SIMPLE, or other retirement plan, talk with your HR department to get started. If you don’t have an option to use an employer-provided retirement plan, sign up for an online investment account like Vanguard or Betterment. Start with as much as you feel comfortable, and gradually increase the amount with a goal of 10% of your income going towards retirement.
After establishing your retirement savings account, start saving to these three savings accounts: emergency fund, sinking fund, and a goal fund.
Having these three savings accounts helps you avoid acquiring any additional debt and work towards something exciting. Something I’ve noticed is that people don’t take advantage of the ability to have multiple accounts for free. I find it very helpful to have different accounts for different purposes to help me ensure that my money is going where it needs to go for me to reach my goals. Checking, I like to keep simple, and I only separate our business accounts from our personal account, but I have different savings accounts for my emergency fund, my sinking funds, and for the big expenses that I’m saving for. These are all just basic savings accounts – my retirement investments are held with other institutions that specialize in investments.
Don’t forget to automate it! Open the accounts, set up an automatic transfer for the day of each day of your paychecks (or on some other regular basis – weekly, biweekly, or monthly), and increase those amounts as you go.
Emergency Fund
Life happens, and you don’t want to be going deeper into debt every time you hit a bump in the road. We can’t plan for everything, but even a small amount set aside for emergencies will help. Open a special account for this, and deposit $1,000 as soon as possible, then [automatically] deposit a small amount each month to work towards having 3-6 months expenses on hand. We are depositing $50 every month to this account right now, and I moved it to a different bank to keep myself in check regarding the definition of an emergency. This money is out of sight and out of mind, but will be there when I need it, and it is slowly growing. After we accomplish some other goals, I’ll focus on building this account to cover six months of our expenses, which would give us some freedom and options if one of us would lose our jobs.
Sinking Funds
Do you ever feel like something seems to come up every month that totally throws you off track? Start saving for those things now so that the money is available when needed – property taxes, home insurance, vehicle taxes, vehicle insurance, Christmas, vehicle repairs or a replacement vehicle, annual vacation, home repairs, medical bills, etc. Some of these items may feel like emergencies, but emergencies are unexpected. If you own a home, it will need repairs. If you drive a vehicle, it will need maintenance, repairs, and eventually to be replaced. You will have regular medical bills, even if you are a healthy person. You buy your children Christmas and birthday gifts every year. Stop thinking of these things as emergencies and plan ahead for them. Open the account and set up a small automatic transfer for each of your paydays to get started. Even depositing a small amount each month will help you cover these irregular bills and keep you from digging a deeper debt hole. See my post on sinking funds for more information on using this account and determining how much to save.
Big Purchase Fund
This is the fun part! Have you read my post about “The List” – if not, be sure to check that out. Your money should be going towards things that make you excited to get out of bed in the morning! You do not go to work every day so that you can see how much money you can die with, and life is too short to put off all of the fun things until retirement. Set aside some money each month for the next thing on your list - take a vacation, buy a boat, build a house, take your spouse out to dinner at a fancy restaurant – work towards something that makes you EXCITED!
Make sure that the amount you save here fits your budget. It is important to see your money go towards something that makes you happy, but your priority is setting yourself up for success so that you don’t have to worry about money. Build your emergency fund and sinking funds and pay off consumer debts (everything but the mortgage) before increasing the amount you save in this fund.
Step Three: Automate your bills.
All of your regular bills should be automatically charged to your account. Stop spending time paying the same bills each month and stop paying for late fees because you forgot to send a payment. All of my bills are charged to my credit card and then my credit card is automatically paid off from my checking account on the same day each month, giving me one large, relatively predictable bill, rather than several small charges to my checking account. See my post on utilizing credit cards in a debt-free life for more on that. If you are paying someone (such as my down-home water softener guy) that doesn’t offer an automatic payment option, set up an automatic bill payment through your bank. If your bank doesn’t offer online bill payment, get a different bank.
Be sure to include donations in this category if that is something that is important to you! One of my automatically-paid bills is my contributions to my church. Rather than writing out checks every time we attend, we have an automatic payment set up for every Sunday. That way, we can contribute whether or not we make it to church, and I don’t have to remember to bring my checkbook.
Step Four: Start paying down debt, automatically.
So now that all of your debt payments are coming out of your checking account automatically, let’s speed up the process a bit and get rid of one of those payments. Choose the smallest debt first, or a small debt with the highest interest rate. Change the automatic payment amount to something a little higher but still fits in your budget – every little bit counts! Increase this amount regularly as you realize that you can afford to. The goal is to put as much as you can towards paying off this first debt to get rid of the payment and start building your debt snowball. See my post about setting up a spending plan for help with finding money to put towards debt payments. Continue paying the minimum amounts on all other debts. Once the first loan is paid off, celebrate and immediately take the amount you’ve been paying on that loan and start applying that to the next loan on the list. This is your debt snowball, and this is one piece of Dave Ramsey advice that I absolutely love. David Bach also includes this principal in the Automatic Millionaire. Society tells us that having a lot of debt is normal - everyone has huge car payments and buys whatever they want using credit card debt. This is just not necessary, and there is a better way to live. Get rid of the consumer debt, and put all of that money that you’re saving in interest and debt payments towards the things that you want most.
You are all set to become a millionaire, automatically!
I know this may seem like a lot, but just take each step one at a time. Start with small dollar amounts and keep growing! Take the time to build your money system now, so that you can stop relying on willpower to reach your goals.
Do you have a money system in place? Which of these steps are you most excited to implement? I’d love for you to share in the comments below!
