How To Build A Nest Egg, When You Live Paycheck to Paycheck

Isn’t it Murphy’s law that the unexpected happens in the middle of the month. I have long spent my last paycheck on paying bills, and the next paycheck is too far away for me to let the bank account float on air.

I am running late for work, which should be a sign for me to stay in bed for the day. I get in the car, stick the key in the ignition… and nothing. Nothing happens. The radio comes on for half of a second, just long enough to let me know that my favorite song is playing. Then radio silence – from the car, the stereo… except for the sound of my hands pounding on the steering wheel in a desperate plea for the car to turn on “just this one time.”

Without a car, I won’t be able to get to work. Without work, I won’t earn money. Without money, I won’t be able to get my car fixed… This is what they call a vicious cycle, isn’t it?!

That’s IT. I am done adulting! Being 19 years old, living on your own isn’t everything it’s cracked up to be – in case you were wondering.

Growing Up Quickly

I left Denmark when I was 18 years old. My job as an au-pair was less than a success – to put it mildly. Life got “real” very quickly.

I got a job in retail making minimum wage ($4.25/ hour). When you start to adult, you quickly realize that with paychecks come responsibilities, with responsibilities come expenses! Expenses have a way of catching you off-guard, especially when you are on “your own.”

Growing up quickly taught me a thing or two about being frugal, self-sufficient and financially responsible (and creative).

[bctt tweet=”How to build a #NestEgg, when you live paycheck to paycheck. #Frugal #MoneyMatters” username=”MamaintheNow”]

This is how I scraped by on little to nothing.

I used these strategies to build a savings nest egg. The balance ebbed and flowed as life’s ups and downs put me to the test.

How to build a savings nest egg:

• Keep an accurate check register.
  • Yes, that old school little booklet that comes with your check order, bust it out, dust it off and start using it today!
  • Round up debits and round down credits. (If you spend $5.36 write it down as $6. When you repost 34.53, write it down as a $34 deposit.)
  • In the beginning, round to the nearest whole dollar, as you get used to this method, you can start to round down/ up to the nearest $5. (So the example above would result in a $10 debit and a $30 credit.)
  • Over time, you will build a cushion in the account vs. what is reflected on your check register.
  • Every month, move the cushion into a savings account. In this case, out of sight IS out of mind.
• Collect your spare change.
  • At the end of every day, empty your pockets, cup holders and purse of any coins you may have accumulated.
  • I keep a decorative vase right inside of our door, where we leave our keys. Every contribution to the vase, regardless of how small, is a step in the right direction.
  • Once it’s full, I take it to our local bank to be counted and deposited into a savings account. (Note: some coin-counters charge as much as 10% to count your change, but several banks offer it as a free service to their account holders.)
• Participate in your employer’s retirement benefits program, such as a 401(k).
  • (A retirement account shouldn’t take the place of a savings account, due to the tax implications when withdrawing from a retirement account.)
  • It is still important to start planning for your retirement as soon as you start working. You are never too young to plan for the future.
  • Many employers offer an automatic debit program, where your contribution is transferred directly into your 401(k) plan, without you having to write a check. These funds are taken out of your paycheck BEFORE taxes are deducted, so your contribution reduces your taxable income.
  • Take full advantage of your employer’s contribution match program, it is truly like getting “free money.”
    • As an example, their match may be 50% of your contribution up to 6% of your pay. In this case, be sure to contribute at least 6%, your employer is then adding half of the amount you contribute directly to your 401(k).
  • If you get a year-end raise, increase your monthly 401(k) contribution immediately, before you get used to having the extra money. If you get a 5% raise, increase your contribution by half, so you add an additional 2.5% to your retirement account.
  • The IRS sets an annual contribution limit per tax payer. This amount changes from time to time. In 2016 the amount is $18,000.
  • The IRS 401(k) contribution limits.
  • 401(k) funds are invested in mutual funds or a similar investment vehicle. This means that your funds may grow over time, which is another reason to participate in your employer’s program. (The funds may also decline in value, all based on the underlying investments.)
• Set up automatic savings transfers.
  • Much like participating in your employer’s retirement program, it is a great strategy to deposit a set amount every month into a savings account. Start with a small amount, like $20 per paycheck.
  • If you get a raise, take part of that amount and increase your monthly automatic savings deposit.
  • The important part is for you to stash the money away for a rainy day, before you get used to having it in your daily budget.
• Take half the amount you save in coupons and put it in your savings account.
  • As you leave the grocery store, check how much you saved by using coupons and move half of that amount (regardless of how small or large it is) it into your savings account.
  • By only taking half of your savings, you still feel the effect of using coupons.
• Sell things you no longer need or use.
  • I am going through our house for the second time this year. I find that the more I declutter, the more I find great things to sell.
  • Remember when selling that the proceeds are like “found money.”
  • Stash every dollar away in your savings account.

The importance of building a nest egg

The secret to building a savings nest egg when you are barely scraping by, is start small and put it out of sight and therefore out of mind.

Your savings shouldn’t be touched until there is a true emergency. (A new purse is not an emergency, but new tires or car repair so you can get to work constitutes an emergency. Medical bills due to an unforeseen illness is an emergency, but a vacation to Disney is not an emergency.)

These savings tips are also great to start immediately after Christmas. You will be surprised at how much you will save over the course of a year, making next year’s Christmas shopping less stressful on you, your wallet and your credit cards.

Over time, I grew my savings and was able to stress a little less. However, I never stopped stashing money away for a rainy day, medical bills, unforeseen expenses or next year’s Christmas.

I have a great strategy to help you take control of your finances, once and for all. It’s worked for our family – I am sure it will work for yours too.