Clueless About Saving? Here Are Seven Steps to Start.

If you think about it, personal finance is kind of obvious: Spend less than you earn, then invest the rest. Boom, done.

But obvious doesn’t automatically equal action. If so, I think we’d all be pretty rich already.

Most of our financial scripts are learned through the people around us: people on TV, our friends, our parents. And chances are, you grew up watching them spending money.

In contrast, saving is this invisible, hidden thing that doesn’t really come up in conversation.

When is the last time someone in your life showed you exactly how to save? If someone showed you when you were a kid, then congratulations for winning the lottery. The rest of us, however, weren’t so lucky.

So it’s easy to see how we end up being pros at spending money, and at the opposite spectrum, totally clueless about saving.

Judging from the emails I’ve been getting lately, figuring out how to save is like a shrouded mystery that only The Chosen have the ability to do.

You want to save, but you don’t exactly know how. All you know is that you seem to never have any money left over at the end of the month.

I used to think whatever money leftover in my checking account was “savings.” Using that strategy I wasn’t getting anywhere fast. So today I’ll walk you through the exact steps I took to find more money to save, even when I made entry-level salaries in expensive cities.

1. Setting Up a Separate Savings Account

As per this article, I used to only have a checking account. I first started by setting up a savings account at a bank that was different from my checking account. That way my savings weren’t immediately accessible, because transferring money took 2-3 days. I wanted to reserve my savings for legit reasons, not because I overspent on Sephora one month. Creating this separation also had a psychological benefit: I was intentionally creating a “home” for my savings to live. Saving was now going to be prioritized.

2. Tracking My Existing Spending

This step was key. I couldn’t manage what wasn’t being measured.

I realized I couldn’t realistically figure out how much I could save unless I knew how I was already spending my money. I knew a couple main expenses off the top of my head, but not the nitty gritty.

The nitty gritty matters. We’ll learn why later.

So I signed up for Mint and connected all my bank accounts and credit cards to it. If you’re in the US, and naturally spend less than you earn, I would highly recommend using Mint. I used my credit card for every single transaction so it gets automatically tracked. Then I spent like I normally would, letting Mint keep tabs for a few months so I could get an average of how much I was spending per category.

The bars and graphs that get automatically generated are my favorite part. Here’s an example of one year’s spending broken down by months. I can then click on each bar to see all the transactions from that month.

Disclaimer: Mint tracks your spending AFTER the fact, so if you’re looking for a tool to keep you from spending, well, Mint isn’t it.

The best tracking system is the one that you’ll actually use. I know that I’ll never ever be someone who’s going to manually track everything with a spreadsheet, because it’s not convenient. Mint works well enough for me and my specific spending habits as long as I check it on a regular basis.

What works for me won’t necessarily work for you, so here are some other tools you can try:

An old-fashioned spreadsheet. I really like the looks of this Google sheets one, because there’s nothing old-fashioned about it at all. Charts, formulas and pretty colors? OK, so I added the pretty colors myself. I feel bad that I forgot where I found this spreadsheet and can’t actually credit the actual creator of it. But thank you, person!
You Need a Budget. I’ve never used it, but people swear by it.
The Numbers app on your iPhone. You can read more about how it works on Dirt Cheap Wealth’s post called “The One Killer Personal Finance App in Your Phone That You Didn’t Know About“. The post has helpful screenshots, too!
If you want to get started ASAP, you can set aside a weekend day to go through your last couple month’s worth of credit card statements. Then tally everything up. Most credit cards have “spend analyzers” these days to help categorize your spending.

If you have issues with impulse spending, I still recommend starting with manual tracking so you practice thinking more consciously about what you buy.

It took me a while to track my spending, and my only regret is I wish I started doing it earlier. I’m missing some insights from the early days I’d love to have now.

3. Finding My “Too Much Money” Thresholds

After a few months went by, I discovered some horrifying things about my spending.

I was pretty mad at myself after seeing how those $11 Whole Foods sushi rolls were really adding up. I’d walk there almost every day with my coworker to grab lunch. But if I was being honest with myself, the reason I did it was because I wanted to hang out with my coworker. I couldn’t have cared less about the actual sushi.

Oh yeah, and holy crap, one year I spent $3,500 on clothes? At the time, that was about 5% of my take-home pay, which is the “recommended” amount, but experts be damned. I still had a bad gut feeling about it.

Here’s my unscientific test on whether or not certain spending is bogus: Does this spending make you cringe after the fact? Yes, yes it did.

Everybody also has a different gut reaction to what’s “too much” money for certain things. For example, this woman would never spend $85 on a T-shirt like I would.

I started to realize that I had limits to how much money I spent before I felt bad. $3,500 per year on clothes seemed “too much,” but $2,500 felt reasonable to me.

Seeing my raw spending helped me determine which habits needed to be reined in immediately.

For example, I really didn’t want to be a person who spends $11 on grocery store sushi all the time. So I started bringing my lunch or getting food from cheaper places. How you spend your money says a lot about you, and Overpriced Grocery Store Sushi Girl was not the story I wanted to tell.

And over the past two years, I’m really happy that I’ve significantly reduced my shopping. I wouldn’t have consciously thought to do that if I didn’t track my spending.

Facing my existing spending and not liking what I saw helped me kickstart some lifestyle changes.

4. Creating a Realistic Budget. Key Word = Realistic

After confronting my spending, my next move was to create a plan. And this plan, my friends, is called a budget. The word ‘budget’ has such a bad wrap, but really, to me all it is a high-level plan for how you’re going to spend your money. Some of us, like me, spend months planning vacations. Why don’t we plan out our money, which affects our entire lives? And budgets literally take, like, half an hour to do.

By the time I made enough money to seriously save (about 33k), I was already several years behind, because I took a couple detours in life. So for me, saving as much as I could was paramount. I had to play catch up.

First I started out by hiding money from myself or “paying myself first,” so I could get a system down. My next step was to tweak the system.

To create my monthly budget, I needed to gather the following:

My gross and take-home pay
An average of the last couple month’s worth of spending, and their corresponding categories
A spreadsheet

I drew up a simple plan, entering in the numbers in this order:

My gross and take-home pay at the top of the spreadsheet
My fixed expenses (rent, debt, cell phone bill, etc.)
The average amounts from Mint for each remaining spending category

Then I calculated what was left over. This is what I could currently allocate to savings without breaking much of a sweat.

5. Tweaking the Spending that Doesn’t Make Me Happy

I always had leftover money in my budget…but I couldn’t afford every single thing I usually bought and still meet my savings goals. I wanted to save for a wedding AND retirement AND a possible house down payment.

Some spending would need to be cut.

Along with the knowledge from Step 3, it was time to do some soul searching. It’s hard to be good at money if you don’t know yourself.

While buying everything I wanted was a failing strategy, I could prioritize spending on the things that I truly cared about. After housing and food, my top priorities are travel and shopping, and my spending consistently matches those priorities:

Then I had to ask myself: are there any categories I could tweak that won’t impact my happiness? These are the spending categories I reduced first, because they were the easiest. If I wanted to set myself up for success, I had to start with some low-hanging fruit.

Low-value categories like entertainment, going out, gym memberships, furniture and decorations, and alcohol, all were decreased by about 10%. Again, I wanted to be realistic with my budget by doing small, achievable tests, and continually tweaking the next month.

If you find that some low-value expenses have creeped up as one of your top spending categories, it’s a sign you might not be spending based on your values.

But on the other hand, if buying a coffee every morning makes you happy, then leave it be in favor of reducing another category.

6. Automate, Automate, Automate

After I had a budget I thought I could stick with, I’d edit my existing automated savings amount to match. I’d also add the new budget line items into Mint so I could easily track my progress.

7. Watching My Money Grow

Finally, I love to watch my money grow. Spending money doesn’t feel great, but savings does. Seeing results, even small ones, encourages me to keep going. The small results are why I floss every night, no fail. I don’t even have to think about it because it’s a habit that’s now built into my nighttime routine. My brain has started to learn, “the more I floss, the happier my gums are.” Like the flossing, saving money is a part of my lifestyle. Just like any habit, the more you do it, the more “invisible” it feels. Just like magic.