Living each paycheck? Use my rollover method to start saving money
“Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery.“— Charles Dickens
Our boy Chuck here gets it. If you spend more than you earn, then you’ll probably be in a bad state. Of course this is easier said than done. A lot of us live paycheck to paycheck through little fault of our own. The number one piece of advice you will get anywhere on the internet is to set a budget. Which is beyond true. Setting a budget for what you need to spend on wants and needs and savings is a personal finance basic. At the same time, no one goes through the process to sit down and go through their bank statements to determine where all their money goes. I know, because I was right there with you! I did the exact same thing. As a college student my expenses fluctuated more than GPA (I landed above a 3.0, so I did alright). The one method that got me started saving back then was the paycheck rollover method.
How does it work?
The basics of the rollover method goes like this. When you receive the last paycheck of the month deposit any remain dollars from your previous paychecks of the month into a savings account. It doesn’t matter if you only had a dollar left over, put it away. Here’s an example by numbers:
January 15th you receive a paycheck of $1000
On January 31st you receive your second paycheck of $1000
Between January 15th and January 31st you spent $800
You deposit $200 into your savings account, and live off of the $1000 for the next 15 days
You receive another $1000 on February 15th, but you don’t deposit anything into your savings until you receive your last paycheck for February. Then you’ll deposit whatever is left before you received the last check of the month
Rinse and repeat [insert money laundering joke]
The idea here is two-fold; first, you know when the new month starts, you will only have X amount of dollars to get through the first 15 days, therefore you have to plan your expenses such a grocery, rent/mortgage, and bills accordingly. You’re already getting into the budgeting mindset without the spreadsheets! Then once you get your other checks through the month you will have the funds to pay for your expenses for the second half. Whatever is left over at the end before your last check goes into savings. This applies even if you don’t get paid twice a month, as long as you deposit everything you have into your savings prior to receiving the last paycheck of the month.
Secondly, since you have the mental goal of having some money left-over at the end of the month, you will start to rationalize purchases to make sure after all purchases are said and done, that you’ll have something to put away at the end of the month. This is similar to looking at your bank statements to see where all your money is going.
A great place to store your savings is into an Acorns account. Acorns is a company that will invest your savings and choose your stock portfolio for you. It’s a nice way to keep your money out of reach of temptation, and also helps make your money work for you. You can sign-up with my link here, and Acorns will fund your and my account with $5.
That’s it? That’s all I have to do?
Yes, and no. This is just a starter to get some savings under your belt. It’s always good to have some cushion in case of an emergency, but once that cushion is built, go to the next level and really build out a budgeting plan. You already have a mental guideline after doing the roll over for 6–12 months, now put pen to paper.
The other thing you can use the savings for is to invest in yourself. Take some courses in-person or online. You owe it to yourself to grow your skill-set and make yourself more marketable. Investing in yourself and your education will pay greater dividends than any index or mutual fund. There are many great FREE online resources. One of my favorite is Coursera (not sponsored), here’s a great free course they offer on neuroeconomics, how the brain makes decisions when it comes to money.
But don’t just take my word for it;
“An investment in knowledge pays the best interest” — Benjamin Franklin
