Why saving money is more than just ‘cutting back’

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It’s natural to think that cutting back on expenses is a way of saving money. But unless you’re putting that extra dough where you won’t be tempted to use it, it might vanish before it’s actually saved.

A penny not spent isn’t the same as a penny saved

Let’s say you’ve been wanting to save more money, and you’ve turned your sights to your monthly cable bill. With a mix of spending decisions and restraint, you’ve found a way to slash the amount you owe by $50. That’s good news! But it’s also just the first part of the story. A penny not spent isn’t the same thing as a penny saved. Unless you track that $50 and dedicate it to some type of savings account, it’s most likely going to be spent on something else.

Read more: 5 frugal habits that align with the wealthy

If the only thing you do is spend less money, you’re simply leaving more money in your checking account. That’s not saving. Saving is an act: Taking your cash to a place where it won’t be spent — at least not until it’s time.

Don’t just stop at ‘cutting back.’

Here are some concrete ways to start saving money:

1. Set aside money at the start of each month. This is a strategy often referred to as ‘paying yourself first‘– you deposit money into a savings account at the beginning of the month. The reason to do it: It prevents you from reaching the end of the month and realizing you’ve already spent too much to save.

2. Save a penny of each dollar you earnEvery little bit helps, and over time, it adds up. Depositing a penny of every dollar you make — 1/100 of your earnings — into a savings account is simple math and an easy way to force yourself to put money back. Once you get started, work your way up by putting away more each month — before you know it, you’ll be saving 10% of your income at the start of each month!

Read more: Types of savings accounts: 12 options to save money!

3. End a bad habit — and then set up an automatic bank transfer tied to it. This is a clever way to make sure that your ‘cutting back’ ends up being saved. One example from The Simple Dollar: Calculate how much you spend on coffee runs each week, and then set up an automatic transfer to your savings account for that amount. 

4. Consider an increase in your employee contribution to your retirement plan. Now that the economy has made its way past the Great Recession, many employers have increased matching contributions to employee retirement plans. Taking advantage of this can pay off in the long-run and it helps you avoid the temptation of frivolous spending in the short term. Plus, getting that employer match is free money toward your retirement! Don’t waste free money if you don’t absolutely have to have the extra money each month.


Read more: Baby steps to help you start saving for retirement

5. Use cash instead of plastic — and save the change. Online banking and debit cards have allowed consumers to become looser with their money. By taking out hard cash from the ATM and spending only what you withdraw, you can limit your splurges. You can also save up all the coin change from your purchases and deposit it into a savings account at the end of each month.

Financial experts say cutting back on expenditures is the most difficult part of saving money. ‘The easy part is somehow the forgotten step.’

Just remember that the final step always leads into some type of savings account!

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