This post may contain affiliate links. Learn more here.
Do you dream of a better financial life, but the dream feels impossible? Maybe you see the state of your finances and then see how much money you need for retirement and think you'll never get there.
So you give up before you even try. Sadly, this is the biggest mistake you will ever make.
The truth is very few people become financially independent by coming into a windfall of money or because of a large salary. Most people get there little by little.
It's like building a house. The process doesn't go from empty lot to house overnight. First, the foundation is laid and then the house is framed. Little by little, day by day, the house is built.
Your finances are the same way. If you can make it a point to save money, you can reach your dreams.
And I am going to show you how.
In this post, I'll walk you through the 5 saving tricks I've mastered that helped me go from being buried in credit card debt to having a net worth of close to $1 million dollars.
5 Simple Savings Tricks to Grow Your Wealth
Pay Yourself First
Far and away the biggest and most important savings trick is to pay yourself first. Too many people, including my former self, would pay all my bills and then save whatever was left over at month end.
Usually, this ended up with me saving nothing. Not even a dime.
The reason was because, throughout the month, I found things to spend my money on. When I flipped the equation around and began saving first, things changed.
Every month I was adding to my net worth. Every month my savings were growing. I saved first in two ways.
- Invested in my 401k plan. I was taking just 5% of my pay and putting it into my retirement plan at work.
- Saved money in a savings account. When my paycheck was deposited into my bank account, I made it a point to log in and set up a transfer of $25 to my savings account.
In both cases, saving such a small amount didn't feel like I was really doing anything. But by the end of the year, I was surprised when I looked at my account balances. This motivated me to try to save more and more every year going forward.
As an added bonus, I could spend all the money in my checking account and still get ahead because I was saving first.
Save Your Savings
I'm not sure when I started doing this savings trick, but I have been doing it for many years now. I remember one day after putting my groceries away, I looked over my receipt.
Near the end, I got to the part where it talked about how much money I had saved. On this particular trip, thanks to coupons and sales, I saved 35% or $18.95.
I felt proud that I saved so much money. Usually, that would be the end of it, but that day I kept thinking about the $18.95.
I realized that even though I saved money, I didn't really save it all. Since the savings were in my checking account, I was going to freely spend the money at some point during the month.
So I decided to actually save my savings. I logged into my bank account and transferred $18.95 over to my savings account.
I began to do this every week after grocery shopping. Then I started doing it for other purchases too. Before I knew it, my savings account balance wasn't slowly growing, it was quickly growing.
I was adding between $100 and $200 a month in savings from my spending, which made a huge difference over time.
Think about all the ways you save money and how big your savings account would be if you actually went ahead and saved that money.
Use Cash Back Credit Cards
Another way I began to save money effortlessly was by using cash back credit cards. For this savings trick to work, you have to be disciplined and pay off your balance in full each month. If you can do this, then this is a great way to boost your savings.
I use 2 main credit cards for the majority of my spending. My American Express card gives me 6% cash back on groceries and 3% on gas purchases. My Citi card offers me 2% cash back on everything.
By strategically using these cards for my spending, I average between $1,000 and $1,500 cash back annually.
Since the cash back earned is redeemed as a statement credit, I wait until my cash back balance is high and then use it all for a statement credit. I then take the money from my checking account and save it.
Her is how this plays out. I get my credit card statement in the mail and see that the balance due is $1,000. It shows $500 in cash back. I redeem the $500 cash back and pay $500 to cover the entire bill.
Since I only took $500 of the $1,000 from my checking account, I take the other $500 and put it into a savings account.
With just a little bit of work, I get an annual boost to my savings account balance.
Round Up Purchases
A few years ago, one of the big banks introduced a “round up the change” feature. The way it worked was every time you spent using your debit card, the bank would round up the purchase amount to the next whole dollar and transfer the difference to your savings account.
So for example, if you spent $11.80 at lunch, the bank would round up this purchase to $12 and transfer $0.20 to your savings account.
This process would repeat every time you made a purchase with your debit card.
Fast forward to today and there are apps that do this very thing for you. The one I use is called Qapital. I link up my credit cards and go about my usual day. Every time I spend using a linked card, Qapital rounds up the purchase and saves the difference.
In just over a year, I've saved close to $1,500 in rounded up change. The coolest part is because you are saving such small amounts, you never notice the rounded up amount being taken out of your checking account.
Invest My Money
Finally, I make sure I invest my money. I love having money in a savings account for the short term and for any emergencies that arise. But I am never going to reach my financial goals by putting everything into a savings account.
How do I know this? Basic math. If I need $1 million dollars and save $2,000 annually earning 1%, it's going to take me 180 years to reach my goal.
I hope you see the problem with that.
But if I saved the same amount but earned 8% annually in the stock market, I would need just 48 years to reach my goal.
The bottom line is you need to invest your money in the stock market so you can grow your money and achieve your goals one day.
My Annual Savings Using These Tricks
So what does my savings look like today? Here is a breakdown of the average amount I save using each of these tricks.
- Pay myself first: $2,400 in a savings account and $3,000 in my 401k plan. This is a total of $5,400 annually. To keep things simple, I will ignore my employer match and any growth of this money for now.
- Save my savings: $2,000 in a savings account annually.
- Cash back credit cards: I average $1,250 in cash back each year.
- Round ups: $1,000 a year
In total, I am saving $9,650 each year. I then invest this money and by earning 8% annually, in 25 years I have more than $760,000 saved.
That is a serious amount of money for not doing much at all.
Grow Your Wealth Effortlessly
At the end of the day, you can reach your savings goals. And you can do so a lot easier than you think. You just have to think outside the box and put in a little work.
Find little ways to start saving money. Your balance will start out small and will grow slowly, but over time, it will increase in size. And before you know it, when compound interest kicks in, you'll be earning a healthy amount on your savings.
This will only further motivate you to keep saving more money.
If you can do this, you will reach your savings goals before you know it.
What are other simple tricks that you use to save money? Add your comments below.
This has been a guest post from Jon Dulin. Jon Dulin writes at Compounding Pennies, a personal finance blog, whose goal is to help people be better with their money, one day at a time.