The Simple, Free Trick That Could Help You Save $10,000
If something bad happened and you had to pay for a $1,000 emergency, could you do it? For almost two thirds of Americans, the answer is no. And in our complicated twenty-first-century world—filled with the gig economy, an uptick in freelancers, jobs that don’t offer 401(k)s or saving benefits, and unpredictable paychecks—it seems even harder and harder to really pack away savings for the long haul.
For many years after I began writing and doing freelance marketing work at 18, I felt ashamed that I didn’t know what to do with my new income. Like many people—and especially many women—I felt like I was the only one who didn’t understand how to handle the ins and outs of my bank account. It turns out that I wasn’t alone. Research shows that women tend to have less money in savings than men; in fact, 38 percent of women say they have less than $400 in savings compared with 17 percent of men. It should also come as no surprise that 40 percent of women feel “overwhelmed” by their money situation and almost one third categorized themselves as “discouraged.” And for women trying to make it in the modern-day gig economy, the stats are still dismal. The latest numbers show that 57 percent of freelancers experience cash-flow issues at some point during the year, and almost two thirds of freelancers feel anxious about everything they’re juggling, including finances.
We’ve all heard the inspiring stories of people socking away massive amounts of dough in short periods of time. Grant Sabatier went from having $2.26 in his bank account in his twenties to having over $1 million saved by age 30. Entrepreneur Roi Shlomo saved $300,000 by starting a carpet-cleaning business and living with roommates, while a mom named Ar’Sheill put away $25,000 in a single year off a $68,000 salary. Saving a cool mil may seem unattainable, but all of these people have one thing in common. They focused on a simple concept: pay yourself first. The idea is to think about paying into your savings as you would paying for another monthly expense, like a cable bill or a credit card sum. Even if the amount you choose is relatively small, the “payments” will add up.
And while those viral stories might feel out of reach, there are lots of women taking realistic approaches to becoming super-savers. Strategic partnerships manager Mackenzie Newcomb, who also runs a successful fashion blog and Instagram account, saves on clothes by using Rent the Runway’s $150 Unlimited plan. “As someone who needs to ‘dress to impress’ on a regular basis, it’s been a lifesaver,” she explains. “It also prevents me from making spontaneous purchases.” Newcomb also decided to live in the Astoria neighborhood of Queens, as opposed to a trendier area in New York, but she pays 50 percent less rent than people with salaries similar to hers; the decisions have helped her pay off huge chunks of her student debt and take international vacations. In addition to putting 12 percent of her paycheck into her 401(k) and Roth IRA, sales assistant Sage Daugherty rounds up the dollars in her savings account by small increments whenever she can. “If I have an odd number of dollars in my savings account and I just got paid, I will transfer money from my checking account so that $27.49 becomes $50.00 in my savings,” she explains. “Something as little as $5, even, because every little bit helps.”
And high school counselor Jillian, who asked to use only her first name for professional reasons, has incredibly strict rules around dining out, which have enabled her to put away a full year’s worth of savings and then some. “I only let myself eat food I didn’t prepare myself once a week, I don’t buy coffee unless it's on a gift card, and I don’t eat meat on weekdays,” she says. “Cutting out meat and eating whole foods rather than ‘meat substitutes’ is a surprisingly large money saver on a grocery bill. I’ve literally never bought lunch out in my entire working career.”
If even these types of steps seem overwhelming, there are a lot of other actions finance newbies can take to reconfigure their finances to fit any lifestyle—without necessarily going to extremes. For United Kingdom–based freelance marketer and editor Chiara Bullen, living in a lower-cost area and taking a hard look at where she can cut costs has helped tremendously. “I live in Glasgow, Scotland, which generally has a lower cost of living than other U.K. cities,” she explains. “It means the competition for freelance work here is pretty tough—and I often look for remote positions [which are], again, competitive—but the low rent really pays off and makes it worthwhile.”
Ann Gynn, a principal at G Force Communication, says one of the biggest errors she made when she first started working for herself was not factoring in extra expenses—like her computer, software, and printer ink—into her budget. Now she makes sure to calculate those as well as retirement and health savings account (HSA) money into her expenses. “I also have two savings accounts, one for my business and one for my personal expenses,” she says. “The business savings account has two purposes: [to pay for] tools, third-party invoices, [and similar expenses] that will eventually be paid for by my clients, and [to] cover my ‘paycheck’ in times when existing work isn't sufficient or cash flow has a hiccup.”
And for people who work for themselves or bring in additional income, there are other considerations to make. Stephanie Genkin, a Brooklyn-based certified financial planner and founder of My Financial Planner, LLC, who has worked with many different clients including freelancers, independent contractors, and small-business owners, says she sees the same mistakes from self-employed workers time and again. She recommends first setting aside money for immediate expenses, debt, and bills as well as taxes before you do anything else with your money. “Set up a separate bank account for [tax purposes]," she says. "It helps you detach from the money. You are just holding it for the IRS. Some banks let you give your account a nickname. Be specific. It's not yours to spend.” While salaried staff employees don’t necessarily need to juggle multiple savings accounts like Ann Gynn does, however, Genkin says they can be helpful for people who are freelancing or self-employed and want to separate items like tax money from vacation money.
If you have money left over, Genkin encourages women to put at least 10 percent of those funds into a retirement account like a 401(k) or an IRA, or a savings account to build up emergency funds. But be careful: Genkin says savers want to keep that money at arm’s length so as not to be tempted to dip into it whenever they want. “Typically, an emergency account is for job loss, medical and dental emergencies, family emergencies, car repairs when you need it to commute to work, forced move on short notice,” she says, “not cheap tickets to the Caribbean for spring break with friends.”
For Jillian, having such an aggressive savings plan came in handy when she had a month between jobs with no source of income and had saved up a year’s worth of money. “To me, the emergency fund is there as a ‘get out of jail free’ card,” she explains. “It's a sign that my entire life could crumble and I would buy myself time to get myself on track. I will have the luxury to be able to endure almost anything. It’s freedom and security.”
For Sage Daugherty, saving up is about comfort. “My main motivation for saving right now is to just be able to go out and have a nice dinner or go shopping and treat myself a little, and not feel guilty about spending $100 or something like that,” she says. “Sometimes I feel like I am too frugal, and my parents sometimes remind me to ‘put a crowbar in my wallet’ and go have fun! I definitely try and balance it out.”
And if Stephanie Genkin could give every single person one piece of advice to better their financial future right now? Open a high-yield savings account immediately. “This will help you separate money that you need today from money for the future. Online banks like Marcus, Barclays, and others offer savers 2.25 percent right now on accounts that are FDIC-insured, have no maintenance fees, and monthly no-minimums,” Genkin notes. “It connects to your regular checking account and every time you get paid, you should put 10 percent of your pay into one of these savings accounts.”
Her bottom line? When you get paid, make sure future you gets paid too.
Lily Herman is a writer and editor based in New York City. You can follow her on Twitter @lkherman.
April is Financial Literacy Month on CNBC. To mark it we don't just want to talk about the wage gap or the disadvantages women still face in the workplace. We want action—to the tune of $10,000. This month we'll explore what women can do to net a cool $10K. That means strategies to save more and spend smarter, tactics to negotiate not just at work but on health care, home decor, and more, and stories to inspire your inner CEO.
