How To Save Even When Money Is Tight

Saving for retirement is a big deal, but it doesn’t help to say to people “just save more” if they’ve never been savers before. Saving skills take time and effort to learn.

Yet, like with any lifelong skill, it’s worth learning. Really great savings techniques don’t feel like saving: They’re just another bill you pay, only instead of paying of consumption today, you are building capital to pay for things tomorrow.

The gap between then and now is key. That’s where the power of time and compounding go to work on your behalf. A growing retirement account will, in time, begin to churn income as if it were you, working a second job. It will grow on its own, eventually adding to itself through appreciation and income and exceeding even the amounts you continue to put in.

Getting to that point is half the battle of retirement saving, but you can speed things up by making changes. And yes, you can save even when money seems tight. It’s all about priorities.

Step No. 1: Find the leak in your boat

Every personal finance column talks about budgeting, and then the discussion quickly moves on to software and complexity. Don’t do that. If you bank online, just download the last three months’ spending into a spreadsheet. Sort by any column you like — where you spent money, the amounts, the dates, it doesn’t matter.

The point is to locate where the big dollars go. That might be a single expense each month. It might be a series of expenses, such as restaurants. Attack this anyway you like, but find the cash leak in your spending plan as it exists now.

Step No. 2: Cut your biggest expense

Sounds easy, right? It’s not. But here’s an exercise to help. Get a blank piece of paper and write down the big thing you spend money on each month and that you believe you can do without for just 30 days. Write it down.

Writing things down is important. It makes your ideas real and can turn heedless spending into mindful spending. If it’s eating out, write down “I will eat in for one month” with your own hand and stick it on your refrigerator, somewhere where you will see your own words every day.

Next month, relax a bit. Go ahead and have lunch out once a week. But do go back and download the previous month’s expenses. You will immediately notice a huge change. That’s the number you can realistically save.

Step No. 3: Increase your income

It’s about this time that at least some folks say, “You don’t understand! I have bills to pay and no luxuries at all!” Yes, that’s a reality for many.

For you, the best way forward is very likely to be a second, part-time job. If you are young and single, this can be a hassle but definitely a good way to spend free time, since free time usually  becomes an income drain.

If you are in a relationship and one half doesn’t work, it may be time to rethink that arrangement, or agree that the non-working half should adjust to the idea of the working partner putting in more hours.

It really doesn’t work any other way. Earn more or spend less, and lose the financial stress. Your retirement won’t wait.