Today I’m participating in a blog carnival about “your biggest a-ha moment” with Shannon Ryan from The Heavy Purse. Check out her post and a list of all the other participating blogs here.
I always thought that people who saved gigantic sums of money were somehow special. They had a gene that made them able to save nearly half of their income.
I learned as an advisor that my theory was wrong.
I also learned that there IS a single key to saving big money, and it’s a key that you and I can both use.
Stashing away money IS partly about making good sums of cash and about creating great cash flow. Those are two keys that make the task easier, but without them, they don’t make saving impossible. Also, making great cash and having wonderful cash flow don’t ensure that you’re going to save lots of money.
I’ve met many people with great income streams who blow it on silly toys or entertainment they can’t really afford. I had clients who made over $200,000 that found it nearly impossible to save. They’d built up a lifestyle that demanded every cent of that money, and my job was to help them reclaim it.
Great income and cash flow creates opportunity, but whatever your situation, you have to take advantage of it.
There’s a key that’s much, much bigger to saving money.
To explain the key, let’s honestly examine human behavior.
If you’re anything like me, to some degree you’re lazy and you have a wide range of more interesting hobbies than saving. If I have ten dollars in my pocket I’m going to find a use for that money, and it probably isn’t long term.
Also, the makeup of a human is that we’re supremely interested in survival right now. That’s why it’s incredibly hard to save for the future. We’re programmed to take care of immediate needs. Anything having to do with delayed gratification has to be learned. That’s why we enjoy eating. It’s why we enjoy purchasing “things”. We’re hard wired to take care of our perceived immediate needs, whether it’s buying clothing or entertaining ourselves.
So what’s the key to saving? It’s simple: set it and forget it.
Sure, it’s simple…but are you doing it?
The ONLY key is to hook up your income stream directly to your saving. People I met as an advisor who were “great” savers had this habit down cold. They were able to stash money away because they set it and forget it.
Get money out of your hand. That’s why set it and forget it is such a big deal.
My biggest a-ha moment with money was the moment that I found out that the key to saving was automation. Most people thought that it was something big….like being able to pick the right stock or to find the appropriate fund. It wasn’t any of those. It was simply the fact that the rich people I know put money away methodically and the people who were poor didn’t.
It sounds simple, yet it’s huge. That was a monster aha.
So, what did I do? Well, of course, I started automatically putting money away.
It was amazing.
I’d look at these monthly “trickle” payments and see that I had some money set aside….and it turned out that I’d just put a few dollars away. However, now that it was saved, it was SAVED and I wasn’t going to touch it. Pretty soon, this $10 turned into $20. The money I was saving automatically was actually going toward monthly savings that mattered.
Let’s be honest. If you’re anything like me, to some degree you’re lazy and you have a wide range of more interesting hobbies than saving. That’s why set it and forget it is such a big deal.
Want More On This Topic?
– Try reading The Wealthy Barber, Updated 3rd Edition: Everyone’s Commonsense Guide to Becoming Financially Independent
. This is my favorite book on getting your savings plan up and running.
– Check out our podcast with Jacob Wade from iHeartBudgets on setting up a good budget (and we talk beer, too!): Stacking Benjamins podcast: Budgets and Beer episode.
Brian @ Luke1428
“Set it and forget it” Love the phrase and agree it is such a huge key to success. Those automatic transfers of money to savings or investments a) save time, b) keep you from forgetting to do it and c) keep you from spending money because it never gets into your hands in the first place. We do automatic drafts each month into our savings, HSA and retirement accounts.
Yeah, I totally buy the “set it and forget it” thing, Joe. Another example would be how employers (mine does anyway) take out your payment for your health insurance out of your paycheck pre-tax. When someone asks me “How much do you pay for your health insurance each month” I always have to go look…because after I complain about it for a week straight each December when I find out it’s going up, I forget it and never think about it again. I never see it, so it doesn’t register.
We LOVE automated savings programs. With every paycheck we automatically send a certain amount of money to our 401ks, savings accounts, and even our debts. We find that it really helps us keep our spending in line with our priorities, since the bulk of our “spending” is going toward these things every month.
Every month the money goes out into the investments and savings through direct debit. Pension is automatically taken off paycheques. Any wage increase is ignored as far as available spending power and is diverted to more savings. If you don’t see the money coming off then you won’t miss it.
I like where you conclusion went. We as humans are so tied to a psychology that we don’t completely understand, it’s spooky. Setting it and forgetting it is the sort of thing that we all like to believe *shouldn’t* work, and yet for so many people, it’s the best strategy
John S @ Frugal Rules
Love this Joe! It’s so simple, yet it can be so easy to overlook it altogether. It took quite some time for me to realize the power behind automating, but once I saw that it worked I was hooked. We have money diverted to a number of different accounts now and it’s not even felt and we get to meet our goals – double win in my book!
This is something I set ill have a hard time reconciling since my income is SO varied. If I automate TOO much I run the risk of not having enough in my checking account to cover bills. It means I have to be that much more disciplined about taking out certain percentages each paycheck to transfer into different buckets.
That’s a great phrase, and eye-opening point about automation. I currently do that with my retirement and savings account, but why not increase the amount or automate other accounts (since with some, I just put set aside if there happens to be funds left over). I’ll use your strategy, thanks!
Love this, Joe! I agree – we still have a bit of cave man mentality hardwired into us. We spend now because we might not be here tomorrow, so we might as well enjoy it. That was probably okay back then, but today too much YOLO can be a problem. 🙂 I am too a big believer in set it and forget it. It’s simple, anyone can do it, and it works. I’m sure it was the same for you, but people are sometimes resistant to the easy things because they believe it needs to be hard, complicated and painful to work, This seems to be especially true with finances. Thank you so much for sharing our money a-ha with us!
That’s one thing I miss about my old job. I had my 401K contribution taken out automatically. I save manually now but I’m old and saving has become fun =/
Automation can be so huge. I had a friend who quit smoking by automating the cost of a pack of cigarettes everyday from checking into a special savings account. Every time he wanted to light up again, he’d call and check the balance. It worked.