Did you know? Just 40% of Americans are able to cover an unexpected $1,000 expense. Let’s change that narrative, and help you save your first $1,000 this year.
Saving money might seem like a daunting task, especially if you are living paycheck-to-paycheck. Saving money is even worse when you are tired from carrying the burden of debt.
However, saving money is something everyone should do. There are very few pieces of one-size-fits-all advice in the personal finance world, but saving money, even a little, will make an impact on your life.
Even a small sum of $1000 in a savings account can stop you from falling behind if unexpected expenses pop up. There is not one person who wouldn’t benefit from a small cash cushion!
This article covers the a few simple steps you can take to save your first $1,000:
- Set a Action Based Savings Goal and Get Motivated
- Break Down the Main Goal Into Smaller Goals
- Determine How to Achieve the Small Goals
- Widen Your Income and Expense Gap
- Execute and Work Consistently
The best part is these steps are applicable to any money goal; you are more than welcome to set a higher savings goal after you hit your first $1,000!
1. Set an Action Based Savings Goal and Get Motivated
By reading this article, you are likely already thinking about saving more money.
The first step on your savings journey is to be international and decide on a savings target.
For you, your savings target is $1,000.
There are a number of benefits to saving money. One is the obvious improvement of your financial situation.
However, there are more than just financial benefits to saving this sum of money. There is also the satisfaction (and stress-relief) that comes from feeling in control of your money!
Now, you now need to add a deadline in order to make it a true goal. If you didn’t have a deadline, it’d be difficult to measure the goal and you will be less likely to accomplish it!
The date component of the goal could be as aggressive or conservative as you’d like. This will depend on your personal situation as well as how much you are able to change in it. A good benchmark would be 3 to 12 months.
Your goal should look something like this:
I will save $1000 within 6 months.
Now that you have your goal in mind, let’s move on to how you will accomplish your savings goal.
2. Break Down Your Big Savings Goal into Smaller Savings Goals
Saving $1,000 for the first time might seem intimidating and/or discouraging. Luckily for you, there is a simple trick to make your savings goal much more manageable!
To make your big savings goal more manageable, you can break it into smaller savings goals. These smaller savings goals need a time component to them just like the main goals.
Looking back at our example goal, saying I will save $1000 in 6 months is the same as saying:
- I will save $500 in three months two times,
- by saving $166.67 every month,
- which means I have to save $83.34 every paycheck (biweekly), and
- this results in saving $41.67 a week
By focusing on the $41.67 a week in savings, the goal seems a lot more manageable and attainable.
Does saving $41.67 a week sound a lot more manageable than $1000 in 6 months?
Breaking your big goals into smaller goals is research-backed as well. A study conducted jointly by USC and Harvard has shown breaking down big goals is effective due to the dopamine released by accomplishing your small goals.
Dopamine is the “feel good” hormone. Your brain appreciates these frequent small “rewards” more than chasing the infrequent big ones!
By staying consistent, and hitting your weekly saving goal of $41.67, in 6 months, you’ll hit $1,000 in savings! Do you believe this is possible?
Let’s move on to the next step and talk about how to save this $41.67 a week.
3. Determine How to Achieve Your Smaller Saving Goals
You’ve gotten the what, when, and why figured out. This next step will help you answer the question “How?”
You now need to figure out how to save that $41.67 a week.
There are many ways you can go about this, however they all stem from the same principle: the difference between income and expenses, and then saving that difference.
For you, you may already have that income and expense gap, but may want to set up automations to help with increasing your bank account balance.
Automate Your Savings to Save Your First $1,000
Automating your savings can be a great way to help you make sure you don’t touch your $41.67 weekly savings.
Not only does automation make managing your money hassle-free, it also can help greatly if you find it difficult to manage your discretionary spending.
Quite simply, you set up an auto-transfer so that money is moved from your checking account to a savings account after payday. This removes the element of choice, meaning you will save money, and you will make it work!
“Do not save what is left after spending, but spend what is left after saving” – Warren Buffett
This pay yourself first mentality can be very effective. Let’s recall our example goal of $1000 in 6 months.
You would set up a biweekly auto-transfer in the amount of $85 (the exact amount is $83.34, but it’s easier to stick to round numbers). Now, that money is put away, you can spend the rest of the money however you’d like!
One word of caution would be to take care to not save more than you can afford. Doing a quick projection of your expenses can help to see if you have enough cash left over after saving to pay the bills!
If you can’t afford to save this much with your current income and expense gap, then it might be best to focus on increasing the gap by increasing your income, or decreasing your expenses.
4. Increase Your Income and Expense Gap
One of the fastest ways to save more money is by increasing the gap between your income and expenses. If you increase your income by $100 a month, and keep your expenses the same, then you will have the ability to save that $100 a month right away.
Likewise, if you decrease your expenses by $100 a month, and keep your income the same, you can save that $100 a month right away.
There are a number of ways you can increase your income, or decrease your expenses. Let’s go into a brief discussion on these two topics.
Cut Expenses Where Possible to Save More Money
Most people associate cutting expenses with being “cheap.” However, this doesn’t need to be the case! The easiest way to cut down expenses is by focusing on the three biggest categories.
These three categories alone make up for 61.3% of the average American household spending.
The three are housing, transportation and food. You will find it most effective to focus your efforts on reducing expenses here!
The biggest expense is housing. Some ways to reduce housing costs include:
- Downsizing your home
- Getting roommates
- House hacking
- Renting out space on AirBnB
Trying to save $100 on food, entertainment, or other necessary items may be difficult, but moving to a lower area, or opting for a non-luxury apartment instead of the luxury apartment will do wonders for your ability to save.
Reducing transportation costs basically falls along the lines of reducing car usage. Deciding to buy a used car, instead of a new car would help you reduce transportation costs. Also, buying a car with better gas mileage will help as well.
For saving money on food, eating in and cooking more will help you save more money over time.
If you want to cut other expenses, subscription services are another place where money will go to waste!
Increase Your Income through a Raise or Side Hustles to Save More
The alternative to cutting expenses is increasing income. The drawback to cutting expenses is that you can only reduce your expenses by so much. Increasing your income on the other hand effectively has no bounds!
Arguably the easiest way to boost your savings is keep your expenses constant whenever you increase your income. Your income can increase through getting a raise, getting a new job, or starting a side hustle.
I managed to grow my income from $12 an hour to $100,000+ a year in my 20’s.
What I realized is increasing your income is all about providing VALUE.
Focusing on providing value in your work and hustles will lead to more gigs, higher compensation, and more money coming in on a monthly basis.
With more money coming into your bank account, you can save more money.
Now, let’s talk about consistency – the most important concept of personal finance!
Consistent Actions Lead to Success in Saving Your First $1,000
By this point you have came up with a savings goal, broken it up into a series of smaller goals, and determined how you’re going to accomplish the goal. Now, it’s time to take action and achieve your goal.
Consistency is key when it comes to saving your first $1,000, and it’s just as important for the next $1,000.
Trying to save a large sum of money in a short amount of time might not be realistic, but you can definitely do it over time.
Saving small, regular amounts on a consistent basis is much more likely to result in you accomplishing your goal.
Setting up auto-transfers (as I previously mentioned) effectively forces you to be consistent in contributing towards saving your first $1,000.
All you need to focus on is the methods you use to make these contributions possible such as spending less and earning more.
Save Your First $1,000 This Year with These Saving Tips!
The act of saving $1000 involves just as much planning as it does execution.
Following these 5 simple steps will help you:
- set a realistic savings goal
- break it down into manageable smaller goals
- optimize your savings rate
- stay committed and motivated until you hit your goal
Remember, not only do you have to do things properly; you have to do it consistently as well.
The discipline gained and lessons learned from saving money are applicable for goal reaching in many other aspects of life.
Consistency can help whether you are undertaking a huge work project or you are trying to lose weight for the summer.
Think about past experiences: you most likely only became good at something through months and months of practice.
While it took a while, by putting in the work, you achieved your goal. You can do the same thing here with saving money over time.
Saving your first $1,000 will be incredible for helping you get to a better financial situation.
Can’t wait to see your results after you get started saving!!