How to Save Money If You’re Living on Paycheck to Paycheck

Everybody knows they should save money, but unfortunately only some attempt to do so, and only a few people succeed. We were never taught how to save money. As kids, we got used to spending all of our allowance. And that habit was nurtured and built for roughly 15 straight years. So today when we are already making a living, we still have the habit of spending all our money. But instead of it being an allowance, it’s our paycheck.

Fortunately, it is very easy to save money once you know how to do it. When it comes to saving money, it’s not about the income you’re making but the tools and techniques you use. So in this article, I’ll be giving you 3 powerful tools that will enable you to save.

The game of saving money is all about setting up barriers that will prevent you from spending it unnecessarily. In this article, you will learn about 3 barrier types: Psychological, Physical and Social. And in order to make saving money easy for you, you’ll have to utilize ALL of these barriers.

 

Psychological Barriers

A psychological barrier is achieved by using your mind or mental capacity to stop you from spending. A budget is a form of psychological barrier which most people have been taught to use or simply know how to use because of common sense. Sadly, while this barrier is the most common type, it is also the least effective type of barrier. This is why it’s so easy for a budget not to be followed. You may have a budget but do you stick to it? You probably remember times when you bought something small that you had not budgeted for, followed by another small thing, and then another small thing… It’s very easy to spend on these small things and before you know it, there’s no more money left.

A psychological barrier is only ever as strong as your willpower – something very few of us have been trained to develop. This is the reason why we need to utilize the next form of barrier…

 

Physical Barriers

Physical barriers are obstacles that you deliberately set-up to make it hard for you to spend money. The main principle in this is to physically separate and divide the money once it comes into your possession.

One way of doing this is to set-up different bank accounts for each major type of expense you have in your budget. For instance, I have 7 bank accounts that allow me to physically separate the cash I have according to my budget. So when my “daily living expenses account” runs out of money, I know that I have already consumed my budget for the month.

So to incur additional expenses would mean I would have to withdraw from my other accounts labeled as: “charity, investments, personal goals 1, 2 and 3”. Withdrawing from a different bank account means I have been spending too much, and as a result I would have to sacrifice things that mean so much to me.

Take note, those “important accounts” do not have ATM cards. The only ATM account I have is with my daily living expenses. So I would need to make extra steps to withdraw from my other important accounts, making it inconvenient, and less likely to happen.

If you can’t afford to go to different banks yet to open different savings accounts, you could rely on the envelope system. This is when you simply create a budget then put a portion of your money in an envelope that has been labeled for what you want to spend for from your budget. For instance, if you need to pay for your electric, water and phone bill, then you label one envelope with “utilities” and put the money in there. You can then get another envelope and label that “phone” then put the phone bill payment in there.

Other envelopes could be: Investments, Emergency Fund, Capital for Business, Travel, New TV, etc.  So when you take money out of the envelopes that are important to you, you immediately know you’re off track. Labeling them can also help to give you pause when drawing from those accounts wrongfully — after all, would you really feel good taking from an envelope called “child’s education fund”?

 

Social Barriers

The social barrier is set-up by involving friends and family to help you save for your goals. This is an effective barrier because of two facts: (1) You spend more when you’re spending WITH other people and (2) you spend more when you’re spending FOR other people.

OFWs are very familiar with this situation. When they are living abroad, they live on the bare minimum so that their families here can live at the luxurious maximum. They save enough money in order to be to come home. But when they do come home, again they spend everything they have earned. It’s so easy to spend money with and for the people you care about because it doesn’t feel wrong. But it is very far from what is financially right.

This is why it is very important to communicate financial goals to your close friends and your family. Because they are the people who care most about you, and will most likely want to see you achieve your goals. Your closest friends will most probably poke a little fun at you for being “cheap”, but at the bottom of their hearts, they would (they should!) want to see you succeed. So don’t hesitate in putting up social barriers.

An excellent analogy to social barriers is the following situation: A family of 6 is going on a road trip, when all of a sudden, the car breaks down. You were told that a mechanic is just 1km, and you were advised to simply push the car there to get it fixed.

Now, the fastest way to get to the mechanic is if everyone gets out of the car, and pushes the car. The fastest way is if everyone shares the burden. On the other hand, the slowest way to the mechanic would be if only one person pushes the car, while the rest stay inside. Only one person is doing all the hard work, while the rest are comfortably sitting. There’s also a possibility that they never reach their destination!

It’s the same thing with saving money. It’s easier when everyone does their part. So If you’re serious about saving money, tell your family to get out of the car and do what they can. Tell your friends that you’ll be joining less outings because you want to achieve your financial goals. That’s the fastest way you’ll be able to save for your goals.

Saving money is not rocket science. You just need to be intelligent about saving so you can identify what you get tempted to spend on that you can’t afford. You should also use all three types of barriers mentioned here to be able to make room in your budget for savings. If you do this for each and every paycheck you receive, you will be pleasantly surprised at the end of each month that you have managed to save quite a bit of money, rather than simply living from paycheck to paycheck like you used to.

 

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