looking longingly at the savings piggy bank

How do you actually start saving money?

How do you actually start saving money? I used to devour everything related to personal finance right after the 2008 crash – mostly because I was broke as a joke and there was nothing better to do. After taking a roughly 10-year break and coming back to this part of the internet, I found that a lot of blogs (and forum posts, and reddit communities) are mostly about folks with high salaries, or tax questions, or crypto-trading addictions. Things have changed a lot…

(This is a bit of a tangent, but I attribute that to the ridiculously long bull market of the 2010s, when the rich got richer and the middle class got rich. The same people that used to write about saving a few bucks on groceries are flipping houses now, and their audience has changed the same way.)

So… How do you actually start saving money? I don’t want my blog to become yet another depository of advice for the upper-middle class (“Make 1% weekly returns by selling covered calls – all you need is $10K!”), and unlike many bloggers, I actually started at the very bottom. I hope my advice will be actionable, or at least mildly useful.

First, there’s a big question about your monthly expenses: do you have barely enough, or do you have money left over after paying your bills, credit cards, student loans, etc? I’ve been in both of those situations – they’re quite different, which is why I’m splitting this advice into two.

Let’s say you’ve got some credit card debt, and a giant student loan breathing down your neck, and unless you’re some sort of pioneer homesteader, you’ve probably got rent and utilities to pay. (If you are a pioneer homesteader with internet access, please reach out to me – you sound awesome and I want to be your friend.) I’m speaking from experience because I’ve been there, done that, when I was a temp at an Amazon warehouse. (RNO1 in Fernley, NV.)

Start by sitting down with a piece of paper (in my case, it was a used paper plate – broke, remember?) and write down all of your non-negotiable monthly expenses, down to the last penny. Rent, cell phone bill, car payment and insurance, etc. Those are your fixed costs – the kind that you probably can’t cut down easily. You can always get a cheaper phone plan, but it won’t save a lot compared to your rent. Note that this list doesn’t include things like gym membership, cable bill, etc. Those are “wants” – not “needs.” It might suck to go without them, but they’re not vital. Sum up all your expenses.

Next, write down how much you make each month. Subtract one from the other to see how much you have left over. That’s what you can spend on food, new clothes, small stuff to treat yourself with, pay off the credit card balance – and, finally, save. If all of this sounds too elementary and mildly patronizing, I apologize, but there are some people out there who don’t know the basics. (I used to have roommates who thought their credit card limit was how much money they were supposed to spend. Yeesh…)

Don’t spend all that leftover money. Set some aside to build a little emergency fund. Ideally, you’ll want to have enough money to cover at least a month of your living expenses. Once you have that done, let’s look at what’s left. When you invest your money, safety is not guaranteed – and neither are rewards. If you have credit card debt, and if you’ve set aside your emergency fund, your next step should be to take some of that leftover money in the budget you’ve just come up with, and commit some of it ($50, $100, $250, whatever you can). If your APR is, say, 10%, then paying off that credit card debt will be like an immediate 10% return on your investment. 

And then, and only then, once you know how much money you have left each month, once you have an emergency fund, and once you paid off your credit card (I can’t describe how great it feels to get rid of that stress), start moving some of your leftover money into savings. Traditional savings accounts that banks like to promote will get you 1% return on investment, if you’re lucky. You’ll want to set up an account with an online broker (my favourite is Fidelity), and start transferring money there at the end of each month. Earlier, I wrote a post about the dangers of stock-picking, so if I were you, I’d just invest in an index fund – but it’s your money.

It may feel ridiculous to transfer just $50 or $100 a month when you read about all the people throwing around tens of thousands of dollars. (In which case, I recommend logging off the wallstreetbets subreddit.) But even they started out somewhere, and many of them have an origin story not unlike yours. You start out small, and then eventually that little snowball turns into a bigger snowball, and then a huge pile of snow, and at some point not too long from now, your brand new portfolio will turn into a mighty avalanche, an awesome force of nature that will set you up for life. But first, you have to start it. So sit down, write down your expenses, look at what’s left, and plan what you’ll do with that money. It may not be much, but it’s yours to spend and allocate. You start small, then see where you can get.

shielding a small investment plant made of money
Would it help to think of your new portfolio as a tiny sprout? Because I literally have a painting of a money plant on my wall – it keeps me motivated!

Let’s look at the second scenario. Your monthly budget is no longer a source of stress, and you have a job that pays well enough that you have some money left over. How do you actually start saving money? I remember getting promoted from a temp to a full-time employee at the same old warehouse, making quite a bit more money with that pay bump and with the night shift differential… Life was a lot simpler back then, and even though I was making just $14 an hour or so, there was always money left at the end of the month. Not much, but some. Ditto for when I was an office grunt in Seattle years later: no overtime but rather a monthly chunk of cash dropped into my account, which made it somewhat of a zero-sum game. I knew exactly how much I’d get each month, and how much I’d be able to spend on non-essentials.

You might not be struggling to pay the bills like our friend in the first example, but you’ll probably have the same reaction: starting an investment portfolio? With just $500 or $1,000? That might sound a bit ridiculous when that money won’t even buy you a share of Tesla (it’s currently $1,134) but yes, that’s exactly what you should do. The approach might be a bit different, though.

Here is what worked for me: I suck at making line-item budgets. Some people can write down exactly how much they’ll spend on food, or clothes, or gas, and more power to them. When I was still employed, I’d work backwards: I knew how much money I could afford to spend each month, and I’d live comfortably – going to the movies, on dates, to concerts, etc. At the end of the month, I’d check how much left over. My personal safety number is $3,000 USD: if I had that much in my checking, I was a happy camper. (If there’s a sudden emergency that requires more than that, chances are liquidity won’t be your main problem.)

I’d take whatever money was left after taking out $3K and transfer it to my investing account. All of it, down to the last penny. In other words, if I ended the month with $3,505 in my bank, those $505 would get transferred. If my balance was $3,046.29 – guess what, that’s a tiny but greater-than-zero deposit of $46.29, off to join my portfolio. Then I would write down how much I transferred in a separate text file I kept for that exact purpose. My transfer history would probably look goofy (if not bizarre) to anyone who cared to look, ranging from just a few bucks to over $1,000 on some months, but hey, progress is progress.

I used both of those approaches to climb out of credit card debt, save up for my retirement account contributions (more on that later), and eventually save up enough money for a 20% downpayment on a condo near Seattle. (Admittedly, it was the cheapest condo in the area, and the HOA was corrupt as hell, but that’s a different story.) As I wrote elsewhere, I never made six figures in my entire life, and for the vast majority of my career, I was paid by the hour. If you’re a low-paid hourly grunt always looking out for gigs and new streams of income – I hear you. I was in your shoes too. Don’t do anything weird with your money, play it safe (i.e., please don’t chase random crypto coins), and you’ll be able to build an investment portfolio too.

Take it one step at a time and don’t give up. All shall be well.

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