How To Save for a Short-Term Goal When You Live Paycheck to Paycheck

Family saving money in piggy bank.
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If you’re living paycheck-to-paycheck, it can be hard to think of ways to save money. When it seems like all of your income is going toward your bills, the idea of setting some money aside may seem out of reach.

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But while it can seem difficult to save when you have limited discretionary income, there are steps you can take to make the process easier. Here are a few strategies that can help you save for a short-term goal, even if you’re counting your pennies every paycheck.

Make Hard Choices

If you live paycheck to paycheck, you won’t be able to spend your money on everything you want in life. This means that if you have a short-term goal that’s important to you, you’re going to have to make a choice as to what you’ll have to give up.

This can be hard to do mentally, but if you focus on the reason you are saving for your short-term goal — be it a vacation, a wedding or some other special event — it can make it easier to prioritize. In some cases, you may find that diverting your money from things you are spending on now can actually be a good long-term change. For example, if you are spending too much money on dining out, subscriptions or even vices, trimming those down for more productive pursuits — like a short-term savings goal — could be a good long-term change. 

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Automate Your Savings

As dedicated as you may think you are to saving for a short-term goal, it’s always easier to automate savings than to rely on yourself. Since saving money is often more psychologically painful than spending it, it’s far too easy to run through your monthly income before setting aside money for short-term goals.

However, if your bank automatically transfers money into your savings every month, it won’t be in your account to spend on other things. Although this can make it difficult to live off your remaining cash flow, if you end up having to trim some expenses from your budget by the end of the month, at least you’ll know that your short-term savings are protected.

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Slightly Increase Your Savings Every Month

The most important step when it comes to saving for a short-term goal is just to start, no matter how small the amount is. The second most important step is to continually bump up your savings rate so that you can reach your goal faster.

While this may seem impossible at first, if you automatically increase your savings in small increments, you may not even notice the bump. For example, if you earn $4,000 per month and save 2% of your income, you’ll save $80 per month. If you bump that up to just 3%, your savings will increase by 50%, but it will only cost you another $40 per month, or just a bit over $1 per day.

Make Your Money Work for You

Meanwhile, you’ll be saving nearly an additional $500 every year. Over time, small steps like this add up.

Keep Your Money Safe and Liquid

Saving for a short-term goal is a completely different concept than investing for retirement. While you need to take some level of risk to build up a long-term nest egg, short-term money should always be kept safe — simply because there’s no time to recover if your investments turn sour.

Of course, you’ll also want to maximize your earnings as much as possible without taking on additional risk. This makes a high-yield, online savings account your best bet for short-term savings. Not only are these types of accounts fully insured, they are also liquid, meaning you’re able to access your money without waiting for a term to end or paying early withdrawal penalties, as is usually the case with short-term certificates of deposit (CDs).

The Bottom Line

Saving for any type of goal requires some type of sacrifice. If you’re living paycheck to paycheck, your cash flow may be a bit tight, but this doesn’t mean that you can’t still save.

With a few careful choices and savings strategies, you may still be able to reach your short-term goals, even on a limited income. Believing that you can — and then implementing action strategies — are the best first steps.

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About the Author

After earning a B.A. in English with a Specialization in Business from UCLA, John Csiszar worked in the financial services industry as a registered representative for 18 years. Along the way, Csiszar earned both Certified Financial Planner and Registered Investment Adviser designations, in addition to being licensed as a life agent, while working for both a major Wall Street wirehouse and for his own investment advisory firm. During his time as an advisor, Csiszar managed over $100 million in client assets while providing individualized investment plans for hundreds of clients.
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