How to Save Money, Painlessly!

In trying times like these we could all use a little extra scratch to get us by. And if you're already too busy to pick up a second (or third!) job, then your only alternative is to be smarter with your money and how you spend it. In this article, I will attempt to shed some light on specific methods and tactics that you can use today in order to start holding on to more of your money. Keep in mind that the focus of this piece is how to increase your bank saving account/coffee-can-in-the-back-yard-fund. I strongly suggest employing these tactics after you have already started to save for retirement.

Let's start this off my dispelling some of the myths about money.

Myth: "I don't make enough money to save right now".

Truth: Your problem is not how much you make...more on this later.

Myth: "I'll start saving after I get my raise/next year/after I pay off my car".

Truth: It is never the "perfect" time to start saving. The best time is NOW!

Myth: "It is impossible not to spend your savings when you're living paycheck to paycheck".

Truth: Again, your problem is not your income and it is entirely possible to SAVE your savings.

Now that we have all that out of the way lets get down to brass tacks. I am going to list for you specific tactics that you can employ immediately and describe to you how they work. These are listed in order of sequence; to get the most out of this list, you should apply them sequentially.

1. Start Direct Depositing Your Paycheck's.

Direct deposit is your best friend when you're trying to save money since you can assign how much is to go into your checking account and how much is to go into your savings. A good rule of thumb is to save no less than 10% of your net (after taxes) pay. And the beauty is that this saving happens automatically.

You'd be shocked at how quickly this money adds up. If your after taxes pay was $1,000 then you should be saving $100 per pay check. If you are paid biweekly then there are 26 pay periods in a year. This means that you have faithfully saved $2,600!

But, I know what you're thinking. You're thinking, "I am already spending every cent I make and I'm not saving a dime! How can I afford to take a 10% pay cut!?" Well this goes back to Myth #1...your problem more than likely isn't your income, it's your spending habits. And from here we move to our next step...

2. Create a budget.

This is probably the most laborious part of being smart with your money. But the good news is that you only have to do this once (unless your financial situation changes). Don't worry though, creating a budget doesn't mean you have to be as organized as an accountant or employ complex mathematics that you left behind in High School. No, all you need is a piece of paper, a sharp pencil, and a calculator.

The first thing you do in creating a budget is to figure out how much you take home in a month. If you don't have a regular pay check, or work by commission, then use your best estimate and then subtract $50.00 - just to be on the safe side.

Second, you figure out how much you spend on all of your non-optional expenses. These are bills like rent/mortgage, water, electricity, car payment, gasoline, etc.

Next you take your monthly take home pay and subtract your bills (told you guys this wasn't so hard).This is your Earnings-to-Expenses comparison. Now, if your take home pay is more than your expenses, then great! You're already in good shape; if not, then the next step is even more important.

Now you call all your optional (read "negotiable") expenses - these are items like cable, cell phone, food, car insurance, credit cards, etc and negotiate for a lower rate. I know, this is pretty basic, but it bears mentioning here. Use your newly found savings here to re-calculate your Earnings-to-Expenses comparison. And now that you've gotten your spending to be beneath your earnings then you've just destroyed Myth #3.

3. Take Stock of how much you spend in a pay period and on what.

This requires a little bit of work but is so integral to helping you save money that you will likely fail to save much of anything unless you complete this step. Now, reread Myth #1 and its Truth. Here are the facts: unless you are deficit spending each and every month, then you already make enough money to save! And even if you are honestly spending more than you earn, then your problem is still likely to be more behavioral rather than one of income earning power.

Financial Planner and author David Bach came up with an ingenious notion called "The Latte Factor". In short, your "Latte Factor" is the amount of money you spend on little things like coffee, video rentals, a quick lunch on the go, cigarettes, or alcohol. Your job is to figure out how high your "Latte Factor" is by adding up all the 'little things' you buy in a pay period. Once you know this then you have to begin by eliminating or mitigating you're spending on these items. I cannot over stress how quickly this kind of saving strategy adds up.

Don't get me wrong, though. I am not here to say that you should never buy a cup of coffee, or feel guilty that you ordered a martini after work. I am simply intending to draw your attention to the fact that these behaviors, when they run unchecked, make people buy into Myth #1! Trust me; I used to be one of those believers. But after I started making my coffee at home and began brown baggin' my lunches I started to save about $68.00 per week ($3.50 for coffee 5 times a week + $10.00 for lunch 5 times a week)!

So now that you've saved that $68.00 a week don't think your job is done. That money is still sitting in your checking account, just begging to be spent on something else. What you have to do now is set up automatic transfers from your checking account into your savings account to equal whatever your Latte Factor is. It is extremely important that you make these deposits automatic. You want this to happen no matter where you are or what's on your mind.

So, let's take stock of your hypothetical savings. We already know that through direct deposit savings of 10% you've saved $2,600.00 this year. To this we add your "Latte Factor" of $68.00 per week which comes to $3536.00 over the year. That means, in only one year, you could easily save $6,136. Holy crap! You're rich!