Saving money is a process that most of us need help understanding. If you want to save a large amount of money, your system will need to operate like clockwork.
You’ll need to visualize your money before you can save consistently. You can see your money best by using spreadsheets and following a budget.
You must also check your money daily to prevent random things from happening in your account. Today, I will show you the exact steps I took to go from -$77,000 to over $290,000 in the bank.
Step #1: Open a Google Spreadsheet and write down all of your current expenses. As you can see from my picture, I wrote all my expenses in a column going down. I have many more expenses, as this is just a tiny preview.
Write the expected amount of each bill next to the type of expense. This helps you create a working “ghost” budget that you can follow.
It may take 3-4 months to find all of your bills. Ensure you document every single expense from your debit and credit cards. You must annotate everything.
Remember that HULU, Netflix, Amazon Prime, etc., are expenses. Ensure you write them down as well.
Step #2: Keep track of recurring annual expenses. You will also have one-time annual expenses like car registration, termite costs, Amazon Prime memberships, magazine subscription, etc.
You want to write this down as well. I write these down with the month and cost in the same box. This helps me prepare for the month ahead to reduce any surprise costs.
Part of growing your emergency fund is ensuring you have as much information about your cash flow as possible.
Step #3: Track your monthly expenses. Now it’s time to document your monthly spending via your budget tracker. I write the month across the horizontal axis, comparing the prior month’s payments.
Looking across the prior months is especially helpful for utility bills such as energy, water, trash, and phone. You’ll be surprised how often a company tries to get over on you.
Step #4: Color code your chart. I start with my monthly column blank. When I pay a bill, I write the amount in the correct box; however, I do not add color.
Once the company processes the payment in my account, I change the box to a different color. This means that the bill is complete for the month.
Once I see my bills with the correct color, I know I am good to go for the rest of the month. It’s a great feeling to pay all of your bills every month.
Step #5: Consolidate all your bills into one account. Now it’s time to start moving all your bills into one account—one source to pay them.
I use Wells Fargo as my main bill payment account. I have two checking accounts and one saving account with Wells Fargo.
This allows me to keep some extra cash flow in my secondary checking account for unexpected emergencies.
Step #6: Transfer money into your expenses account on the first of the month. Now that you have a definitive list of your bills and the amounts, you can transfer money into the account on the first.
If your total bills add up to $2,000, you want to transfer at least $2,200 into the account. It’s essential you don’t add too much buffer because you want to track these payments like a hawk.
Step #7: Start reducing your expenses. Now for the fun part—reducing expenses. Most people want to jump right to this step, but that rarely works.
Now that you have a monthly bill payment system, you can start working your magic. You want to start by cutting things you genuinely don’t need.
Remember, reducing expenses and living below your means is just for a season, not a lifetime. You must make a short-term sacrifice for the greater good (your life).
Therefore, things like magazine subscriptions, TV apps, gym memberships (if you don’t use them), music apps, etc., need to go.
However, you don’t just delete them. You mark their amount as zero. You keep the line item on your spreadsheet.
Step #8: Open a high-yield savings account. Go open a high-yield savings account. I use Discover because of the great rates and the cashback debit card.
A high-yield saving account offering 3% interest will help you save much faster. Ensure your bill account and high-yield savings account are in different banks.
Set up the ability to transfer money between the two banks. This may take a couple of days because of the “small deposit” system they use to verify accounts.
Step #9: Zero out expenses and add money to the HYSA transfer line item. This is the meat of how the entire system works. Your HYSA becomes one of your bills.
That’s right; as you reduce expenses, that free money becomes a bill to your HYSA. Thus, you pay your HYSA first along with the other bills. The saying “pay yourself first” comes to mind.
For example, say you free up $100 by canceling HULU, Netflix, and the gym membership. You will zero out those amounts and keep the line items.
However, your HYSA line item would read $100. As soon as the first of the month rolls around, you pay the $100 to your high-yield savings account just like every bill.
As you see above, all the “expenses” in blue are savings and investing accounts. This money came from paying off cars, loans, and credit cards.
Before the money slipped into the ether, I captured it on my spreadsheet. Now, I pay my Series “I” Bonds, income investing portfolios, dividend growth investing, and 30-Year Bonds just as I would any other bills.
Step #10: Repeat until rich. Now that you know how to reclaim your money, you have everything you need to become rich.
The goal is to keep reducing expenses, tracking spending, and increasing cash flow to save more and more money.
Don’t get complacent. I have been using this system since the summer of 2017. However, three years ago, I made it a point to start reducing my expenses and reclaiming my money.
Conclusion. It may seem tedious, but if you want results, you’ll have to track everything. What you measure, you manage.
When I started this tracking process, I was up to my eyeballs in debt. I had three credit cards almost maxed out, and my wife had one.
Today, we don’t have any credit card debt, plus $296,848 in the bank. This is how I envisioned life when I was young.
However, I thought just working a job would naturally get me here. Nope. It takes hard work, dedication, and discipline.
Building an emergency fund is the first step, but you can use this same process to keep saving and investing in other securities and programs.
It feels good to pay expenses and have money left over in my account. I usually invest in my Wells Fargo brokerage. Life is good if you do the work. Good Luck!
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