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Monday, November 30, 2020

I used an old savings trick to stash $5000 in my emergency fund in less than a year, and I’d recommend the strategy to anyone

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When I got my first “real” job after college editing horoscopes for an astrological publisher, I got into the habit of “paying myself first,” a popular savings strategy often touted by personal finance experts. 

Practically, that means that before I spent any of my paycheck, I socked away a bit of cash toward my money goals, such as an emergency fund and a short vacation. It was a simple, no-brainer way of making sure I was making steadfast, swift headway on my emergency fund

I created a basic spending plan 

First, I made a budget to see where my money needed to go. At the time, my take-home pay was around $1,800 a month. And as the rent in my studio apartment in West LA was about $700, that didn’t leave a ton of wiggle room for everything else. 

My budget needed to account for essential bills, such as gas and power, cell phone, groceries, and student loan payments. I realized that, with a ton of discipline, I could live off of $1,400, and tuck away $200 every two weeks, or $400 a month. 

I was frugal to the core

As I only had $700 a month after rent and my savings to spend each month, I had to be mindful and prudent with my spending. Yes, I was one of those enthusiastically frugal types who strung LED lights and showered by way of candlelight to save on electricity. I also rarely went to the movies, checked out DVDs from the local library, and looked for free concerts instead of paying for tickets. I bought the same staples from Trader Joe’s, or only bought food that was on sale at Ralph’s. 

I rarely bought any non-essentials. If I did buy something, it was heavily discounted, used, or picked off the sidewalk. I bought a used bike on Craigslist for about $80, and an oak side table from a yard sale in Beverly Hills for $20. 

I set up auto savings

I had a day job and a steady paycheck, so I opened a separate account for my emergency fund and set up automatic transfers of $200 every two weeks. This took me a matter of minutes, but saved me a lot of inner turmoil.  

After setting my savings on cruise control, I didn’t have to toil over whether I could afford to save. I’d be saving without having to give it a fraction of thought or effort. I didn’t have to fret over whether I could afford to spend $10 and splurge on that fancy cheese at Trader Joe’s, or whether that money would be better put toward savings.

I was aware of the simple fact that I only had $700 to cover all my expenses in a given month. And I couldn’t spend any more than that. By setting ahead aside that money each paycheck, I saved $5,000 within a year. 

I saved all my ‘extra’ money

While I saved the same amount from each paycheck, the amount I saved each month wasn’t always the same. That’s because I also squirreled away “extra” checks and money earned from side hustles or cash I received in the form of red envelopes from birthdays or relatives at Chinese New Year. 

I test proctored at a nearby university, and pet sat for friends for extra cash. While I didn’t earn a ton of money that year from side hustles — about $1,000 — every little bit I made went straight into my emergency fund. Once I hit the $5,000 mark, I focused on saving for a fun goal, such as getting SCUBA certified and taking a solo trip to Seattle. 

While I got there slowly, I was able to save $5,000 for my emergency fund by paying myself first, setting up automatic savings, and committing to saving any “extra” money earned from side hustles. 

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