This is a post that will probably only be relevant to people who are already living somewhat comfortably (no major debt, disposable income). I added it up, and I’m now saving (by my definition) almost $4000/year just with small extra/automatic payments here and there. This is on top of saving 10% of net toward retirement (employer puts in a generous contribution so I’m good there). I’ve done this gradually, so that I don’t notice these amounts coming from my paycheck/bank account. It’s helped me to hold on to more of my money while increasing my salary steadily over the last 4 years. Without this strategy I would probably be blowing through that $4k on incidentals and little luxuries.
I had drained my savings in 2012 on major home upgrades, so had to focus on rebuilding that while also preparing for an anticipated new car purchase. I started putting $750 into monthly savings and socking away whatever 1099 income I earned from freelance work. During this time I contributed a nominal amount toward retirement because I was focused on short-term savings. Put a healthy down payment on the car, and ended up with a $333 payment over 5 years. At that point my savings still wasn’t where I wanted it to be, so I continued putting $500/month there.
I rounded up the car payment to $350 for the first 18 months or so. Easy to do, and over the life of the loan would come to $1020, allowing me to pay it off 3 months early. I was now consistently contributing $850/month toward combined savings & car purchase, where before I had been contributing $750. I crept up to saving $100 extra per month that otherwise I would have spent on whatever.
I refinanced the house and ended up with a monthly payment of $XX14. I started rounding that up to $XX00—an additional $86 toward principal. Then I upped the car payment to $375. I started earnestly saving for retirement again, so the $500 I’d been putting into monthly savings went there. My savings was healthy by this point but I kept the monthly transfer amount set at $100, just to be putting something in. I also started paying an extra $100/month in federal tax withholding, because I often earn a fair amount of 1099 income in the last quarter of the year and then get stuck with a large tax burden to pay early the next year.
At this point I’m saving—meaning, putting into investments, savings account, or toward known expenses rather than spending on non-necessities—over $300 month more than I was when I started. The total picture is more complicated, because I’m also paying less in interest on the house and more on principal due to the refinance, and getting the tax benefit of retirement contributions again. I cut some small expenses, like cable, and picked up some new ones, like yard service.
I know this strategy has its limits; some will say I’m foolish for having an extra $100 withheld on taxes, when I could put that money into an interest-bearing account. But it works for me because I don’t feel any pain and it’s convenient. Everything comes directly out of my paycheck or bank account through auto payment. I'm also just averse to being in any sort of debt and prefer to pay things off even when I don't get a big financial advantage from doing so. When the car is paid off (about 6 months early) I’ll round that amount up to $400 and put it toward mortgage principal or retirement, or some combination. This will prevent me from suddenly feeling rich with extra disposable income, and keep me disciplined toward the long term.
Submitted September 22, 2017 at 06:57PM by savingscreepthrow http://ift.tt/2jSlRgd
