Why You Shouldn’t Wait To Start Saving Money – 5 Tips To Start Saving Now No Matter Your Income

I have to be honest, I wish my younger self had followed this advice. One of the best investments you can make in yourself is saving money for the future. Having savings can give you a safety net to help you cover emergencies, whether that is a job loss or a family crisis. It would be especially helpful in the COVID-19 crisis of 2020. It can also be the dry powder needed to quit your job, start a new business, or retire.

From an early age, I knew intellectually that compounding interest is the 8th wonder of the world. I knew that time in market tends to beat amount of cash in the market. To what extent though.

Out of college, I wasn’t making a ton of money $40k a year. The job was fulfilling and allowed for a lot of opportunities for independent work but the pay was considerably under market. I always told myself it’s okay to wait on investing into my Roth IRA. I’d make a higher income later and can catch up. Instead, I spent it on computer hardware, a car that was too much of a status symbol for a young guy. Little did I realize that my lack of family obligations- no wife or kid to provide for was the perfect environment to start saving. With my obligations, it was much easier to set aside $50 a paycheck and creatively address any cashflow issues by cutting back spending without impacting other people. How I long to be young and foolish again. If I had a time machine I’d whack my past self on the head and tell him to just save.

Decisions around money come down to one thing. Opportunity cost. We need to answer the algebra of – How can I spend my money so I extract the most utility from it? – optimizing for a balance of present-day and future happiness

Start saving now to build tiny habits.

To steal a line from Jocko Willink, “Discipline is freedom.” Creating a framework for how you save money now will help you later. Many people claim they don’t know how to save money or that it’s not the right time. That after they pay their credit cards and expenses each month that there’s nothing left.

The good news is you can start today. It reminds me of when I tried to start training for a half marathon. Early on I was terrible at it. Some people are naturally athletic, God bless them. But I am not. Each day I would tell my wife “I’m going to wake up early and go for a run, I’ll try not to wake you” and each time she would laugh and say “sure, sure” because she knew no run was not going to happen. This went on for weeks.

A friend eventually recommended that before I go to bed to lay out my shorts and running shoes for the next day. The idea is that there would be one less barrier to getting going in the morning this way. This is similar to the work that behavioral economist Richard Thaler has done around small nudges to influence behavior.

You see, I reasoned that I had to wake up and do 5 miles on each run. And my mental accounting figured that there would be no benefit to anything less than that. With that big mental hurdle I reasoned on particularly cold days it would be better to hold up under the covers. In reality, anything would have been better than zero miles. 0.5 miles would move me closer to the goal. I started putting my clothes out the night before, made it a goal to do 0.5, and before I knew it I was on my way.

Start with $5 a week. That’s $260 per year. You’ll hardly notice it. Maybe you can fund it by cutting back on coffee once or twice a week or by canceling an unused subscription. $5 is not enough to assuage all retirement worries but it will help you build financial muscle. As you watch the money accumulate it will feel good to accomplish something. The more you do it the more of a habit it will become. Pretty soon it will come naturally, you might even choose to fully automate it and you won’t even need to think of it. By then you might have enough muscle to do $100 or $200 per week. Goodbye mental load. Here’s the compulsory math. If you started with $5 a week at 20 you’d have $134,864,334 by the time you’re 55 (assuming a conservative 8% market return.)

You probably spend on useless things you don’t care about.

Let’s talk about utility. No, I’m not talking about gas or electricity. I’m talking about the value you get out of a purchase. An ice-cream cone on a warm day at the beach is worth every penny of it’s $4.75 price tag. Even if a pint is normally $3.00 at the grocery store. Don’t worry too much about trimming the fat on these kinds of purchases.

Now let’s talk about the things we buy that are bad purchases. The 45 dollars you spent on that pair of shoes on clearance that you’ll probably never wear but you bought them anyway because it’s a good deal. Spending $0 is always a better deal than 50% off if you get no utility from a purchase. The same goes for those throw pillows you bought at TJ Maxx or other seasonal decorations you don’t really care about. After a while, all of those “good deals” add up. And before you know it you’re throwing good money after bad to rent a storage locker for it.

By all means, spend on what you value. But don’t spend a single cent more than you need to on things you could do without. Try to be more minimalist in one purchase category. You might surprise yourself and like it.

You can have fun without selling the farm.

My wife and I are not always on the same page with money. We are forever influenced by the narratives and family systems we learned from when we are young. My family didn’t have a lot of money growing up – we lived in a blue-collar household where money was always a concern, we shopped at thrift stores and lived paycheck-to-paycheck. From observing them I’ve developed a scarcity mindset that is more conservation-oriented. I’ve seen bankruptcy and less than stellar money management and don’t want to repeat their financial mistakes. My wife, on the other hand, comes from an upper-middle-class background where her parents were physicians and professionals. Her programming is a surplus mindset. Her expectation is there will always be more money available. When the checking account runs low that’s OK because it will be replenished. There is a safety net.

One of her objections is “I don’t want to live like a pauper” and “I don’t want to never have fun.” She’s right. There is a tradeoff between the present and future. We shouldn’t squander the prime years of our lives where we are in good physical health for the promise of a future reward at a time where we might not be in a position to enjoy the fruits of our labor.

But we can’t equate the pure spending of money with the manufacture of fun. Yes, it is a positive relationship. But it is not a linear one. Yes, spending money does probably result in some release of oxytocin that excites and delights the brain. I’ve often found my desire to buy things is highest when I am feeling depressed or a little down on myself. When the cloud passes there is a cavalcade of Amazon packages on my doorstep. I’ve found it’s ineffective therapy and results in preparing many returns.

But we can’t equate the pure spending of money with the manufacture of fun. Yes, it is a positive relationship. But it is not a linear one.

There seems to be a bifurcation between the amount I spend on an activity or purchase and the enjoyment I get from it. I’ve noticed some of the best experiences have been the cheapest. I’ve also noticed that sometimes expensive things are worth it. Money in the middle seems to be wasted. Saving all of our “going-out-to-eat” budget for 2 months and going to a Michelin starred restaurant instead was 100% worth it. Did waiting make it taste better? Maybe there is some level of self cognitive dishonesty here but I stand by the hypothesis.

By the same token, if I look ahead to the days when I’m on my deathbed awaiting my time to upload to the singularity, the experiences I will wish I had more of is the simple ones that cost my time. Sitting with my dog on the porch drinking a cup of coffee, taking in the crisp morning air, and watching the joggers go by. Holding my wife and baby. That’s excellent value-for-money. Maybe this means I should be personally optimizing more for time?

Just because you have money doesn’t mean you should spend it.

I have a friend, I’ll call him Tim that whenever his paycheck drops in every other Friday is in sprint mode to deplete their accounts by the time the next paycheck comes in. If you’re like Tim I’ll let you in on a little secret. If you don’t spend all the money, your account doesn’t magically reset to zero and the funds disappear. Instead, your ending balance becomes your beginning balance. Sometimes I forget I’m not Tim and need this reminder from time-to-time too. Take that last $100 at the end of a pay period and try sweeping it to your investment account. I promise you’ll never miss it and it will be a pleasant surprise in the future. Sometimes people need permission that it’s okay to spend money. Other people need permission that it’s okay to save.

Your income could dry up at any time.

If the coronavirus crisis of 2020 taught us one thing it’s not to count on normal. I used to think that saving is not that critical because I have a job and that paycheck can pay for future expenses. I never considered what would happen if that paycheck was no more.

You might like your job, heck you’re probably great at it and well-liked. But the reality is your luck and position within the organization could be in jeopardy through no fault of your own. Being awesome at your job should be a protective factor during layoffs but it isn’t a sure proof inoculation. Political factors could make you a target. Or maybe a cost-cutting decision has been made to eliminate the whole department.

Sure, I know there are other jobs available and naturally, you’re the best candidate. But if you were laid off you could you sustain a minimum of a 3-months (I’d recommend 6-months liquidity) of job search to look for a position that would be in-line with your career path? Or would you be rushing to find the first job to pay the bills? Nothing is guaranteed. Build a safety net for you and your family.

There you have it. There are many reasons to save money and above are a few to get started. Drop a note in the comments to share your own motivating factors that had you start saving for your future.