Financial Tip Friday: Take the 1% Challenge With Me

Financial Tip Friday: Take the 1% Challenge With Me

My apologies for today’s blog post coming out much later in the day (not that it matters much) but I am trying to get back in the swing of things at the gym, went to the dentist, and I put a patio set together. Needless to say I hate allen wrenches, but the patio set is put together and done.  And Mrs. ROB got it at a pretty good deal.

So today’s financial tip is actually something that I decided to do this month. I like to sometimes experiment financially and see where I am at. My last experiment was with using a Fidelity Advantage Card for all purchases. I use the card for all purchases outside of my bills and mortgage. Then the money I earn goes into my Roth IRA account, which I actually used to buy shares of the National Bank of Greece.

So far the experiment has worked well. I pay off my credit card every month and I am able to see how my spending is. So this week’s financial tip/experiment is for you to take the 1% challenge.

The 1% challenge is fairly easy to understand. In essence, I am asking you and I am going to do this myself to save an additional 1% per month from your paychecks.

So many people have not started saving anything. They have no emergency fund, retirement, etc. And for some people it is impossible to get them to save because they truly don’t have the money, don’t care, or don’t know how too.

I mean telling someone to save 15% of their income or higher and they have never done it before is like telling someone who has never dieted before or worked out to reduce their calories in 1/2 or to ask someone to run 10 miles when they never have.

The truth is we need to train ourselves to work into certain habits. I am trying that right now with another aspect of my life: getting rid of soda pop. I don’t drink coffee, in fact I hate coffee. I don’t drink a lot of water, tea, or alcohol, but I drink a TON of soda, particularly diet soda. And I need to ween myself off of it. I just can’t quit cold turkey so I have been limiting my intake initially to one per day and instead of buying a soda everyday I try to buy Arizona tea or some other drink. So far so good, but I know that I have to train myself to get off the soda habit. I may never fully give up soda, but I want to not use it everyday.

Saving money is the same way. We often have to train ourselves to save money. Personal finance, for most people, is about behavior, not economics. You can have all the head knowledge in the world, but if you don’t change your behavior you will never save money, pay down debt, etc.

What Is The 1% Challenge?

The 1% challenge is fairly simple. Over at Afford Anything they have a great post on it. In essence, it works like this. Instead of trying to save money left over every month after you have paid your bills, debt, etc, you save 1% of your income right off the top before you do anything.

So let’s say you make $3000 a month in net pay. Before you do anything you take $30 and put it in a savings account or an investment account or someplace where it might be difficult to get access to it. And then you spend the rest of that $2970 on your bills whatever they may be. You have automatically saved 1%.

Most of us can save 1%. I mean $30 is, for most people, a few cups of coffee at Starbucks or not eating out one night of the week, taking your lunch to work instead of buying it, whatever it is for most of us it won’t break us. Most us probably waste $30 or even more per month on stuff we don’t need/could do it home.  The point is to start saving. Start training your saving muscle.

Once you have begun saving 1% for a couple of months (experts say it takes 90 days for something to become a habit) then maybe you try to save another 1% and then another 1% after that. So that maybe by the end of the year you are saving 5% of your paycheck instead of 1% because you exercised your savings muscle.

If you have never saved before this is a good place to start. We all have to start somewhere. If you already save 15% or more well still take the challenge. Increase your savings. Why not? The more you save, the faster you can get to whatever goal you have financially. No matter where you are in your savings horizon…take the challenge with me!

The Bottom Line

Saving money can be hard for a lot of people. They read blogs like this one and all they hear is the Peanuts teacher (wah, wah, wah) and it doesn’t register with them, but they know they need to save, but maybe don’t have the muscles to do so. So let’s begin small. 1% of your income that is all I am asking. Nothing more, nothing less. Just take your paycheck, whatever it is, and take 1% off the top right away and put it in a savings account or if you have an investment account (e.g. IRA or Roth IRA) deposit it in there. Then continue to set new savings goals after you have mastered this one. Maybe it is an additional 1% a few months from now or 2% next month. Whatever it is the point is that you start building your savings muscle. Like anything we need to train ourselves to do this.

So will you take the challenge with me?

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