I Used to Live Paycheck to Paycheck, But Now I'm Planning to Retire in my 40s — Here are 5 Money Tips That Helped Me Do It These tips helped me save over 50% of my income — use them to move you closer to the life you want.
By Anita Kinoshita Edited by Mark Klekas
Opinions expressed by BIZ Experiences contributors are their own.
When I got my first full-time job, I spent more dollars than I brought home. For the first six months of my career, I wasn't aware of where exactly my dollars were going. At the time, it didn't feel like I was on a bad financial trajectory because I had a few thousand dollars in my checking account that I had saved up during college from work and scholarships, and I was contributing to my work's 401(k). It's only now — working as a personal financial educator — that I can clearly see the layers of problems with my old cash management habits.
The majority of Americans have issues with cash management. Cash flow management is a skill, and like any other skill, it needs to be learned and practiced. After following these five tips, I unexpectedly got on track to retire in my 40s, improved my relationship with spending, and saved more than half of my paychecks.
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1. Set goals you have a crush on
When you feel something, you do something — and this is important when it comes to changing your financial habits. Before you attempt to learn as much as you can about personal finance or change your behavior, identify a goal that you have a crush on.
Look for a financial goal that gives you an exciting, enamoring feeling. Maybe that goal is affording that one dream vacation, owning your home, or even financial independence as a whole. Forget about choosing the "right" goal, and instead focus on a goal that gives you an emotional charge. Having this as a starting point will help you work through the challenges of behavior change. Once you've identified the goal(s) that light you up, you can reverse engineer from there.
2. Practice paying yourself first
You can reach your goals in hard mode, or you can reach them in easy mode. It's your choice.
I'm a big fan of choosing the path of least resistance at the start. When most people get their paycheck, they spend it all or wait until the end of the month to see what's left over for saving. Paying yourself first is a habit that flips this around. It's taking a proactive approach to your savings and financial goals. That goal you have a crush on? It gets treated like a bill, and before your money goes to anything else, it goes towards that goal first.
3. Automate your savings into a separate savings account
To really crank up the easy mode dial, try to automate your savings into a separate savings account. Automation makes it so that there is no additional mental or emotional effort to make the right decision every time you get paid. Instead, you can set up a direct deposit from your employer to a separate savings account or from your checking account to a separate savings account.
There aren't many skills you can improve by taking this shortcut, but in personal finance, it's one of the only methods to guarantee that your savings and cash management grow. This can help override our instinct to spend.
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It should be in a separate savings account so you can more easily track it and avoid being tempted to spend it. The other advantage of using a separate savings account is that if you open a high-yield savings account, your bank will pay you about 4.5 to 5.3% A.P.Y. for parking your cash in there, as opposed to the national average savings account rate of 0.45%.
4. Get intentional with your spending
Once your savings are on autopilot, you can spend the rest of your income mindfully. Start by doing an expense audit, where you examine your spending habits and identify what is bringing you joy, and reflect on whether or not you can get the value each item brings you for less.
This principle can result in giving yourself a raise without sacrificing a lifestyle that you are comfortable with, but it requires you to spend about 1-2 hours doing some analysis and reflection. Your North Star success metric is simple, which is to spend less than you bring home.
5. Track and celebrate your progress
Depending on what you're saving for, the journey can feel long. If you're not used to delaying gratification, then it will especially be helpful to have a sense of how close you are getting to the finish line. Define milestones and celebrate them when you reach them.
For example, if you're saving for a house, then set 25%, 50%, 75%, and 100% milestones and celebrate your progress at each milestone. You can keep it simple and use a pen and paper or a whiteboard to track your progress.
Saving money and reaching your financial goals doesn't have to be complicated. By setting goals that truly excite you, paying yourself first, automating your savings, being intentional with your spending, and tracking your progress, you can transform your relationship with saving and spending. Start implementing these tips today and move closer to the life you want.
