Hartley Brody

Saving Your First Million Dollars

A lot has been written on the topic of personal finance, but it all comes down to a fundamental fact: In our lives, we earn money, and we spend money – and in between, we accumulate money.

Pretty obvious, right? So if we want to accumulate more money, we have to either earn more of it, or spend less of it. Still with me?

The Power of Wealth

In my college economics classes, we rarely dealt with the topic of “money” directly, it was always just a worthless medium of exchange. People don’t really derive value from money itself, but from the things it helps them buy.

But in the real world, that’s not exactly true. Having a small fortune gives you peace of mind if you lose your job or want to take time off. It allows you to purchase things when you want, rather than having to bounce from pay check to pay check. And if you accumulate money for awhile, you can purchase big ticket items like a house or a car.

We all know that we should be saving money, but there are all sorts of reasons we don’t.

As a recent college graduate myself, I still vividly remember getting my first pay check and the feeling of seeing a few extra Gs in my bank account. I suddenly had all sorts of spending impulses.

I could go out for dinner every night. I could open a tab at the bar and put all of my friends drinks on it like a boss. I could get a new bike or a bunch of new clothes.

Fortunately, it was easy to rein in those impulses and put money aside – all without having to turn into an obsessive penny pincher.

Here’s how I do it.

Spend Smart

The first thing that’s important to realize about saving money is that most people suck at it. That’s not just me and you, that’s your friends and your boss and your coworkers and maybe even your parents.

Fact is, the average American has a negative savings rate. And if you read the news, it seems like every week there’s some new financial scandal that hurts “average” Americans.

If you take your spending cues from the people around you every day, chances are you’ll get pulled towards a lifestyle of poor savings. Especially if you’re trying to punch above your weight class and regularly hang out with people who are older or more senior to you, and who probably make more money than you. If you spend as much as them, but make less income, I guarantee you’ll be heading down the wrong savings path.

If you want to save up your first million dollars, you need to commit to being far above average, and that means learning to say no when the people around you are buying lots of thing.

Now you might complain and say “But Hartley, I have this money that I worked so hard for. Don’t I deserve to spend it? Isn’t that what I earned?”

And my answer is – you’re absolute right! Find the things that you care about, and by all means, spend money on them. Life is short and you shouldn’t waste your early adult years feeling like a hermit just so you can save up a small fortune.

But in order to live a fulfilling life while still saving money, you need to cut spending aggressively on the things you are kinda “meh” on.

For me, I know that I’m not a huge foodie, so I’m super cheap with groceries and I avoid restaurants like the plague. I could probably afford my own place, but I share a small room in a great part of town, and I’m totally happy saving a few hundred dollars on rent each month.

If you actually sit down and look at every dollar you spent over the last month, you’ll find lots of places where you are casually spending $50 here or even $10 there that didn’t really make you happy. Do you really need that Netflix subscription, or would you pay less by renting 1 or 2 movies a month on iTunes? Are you really using that gym membership?

Those are perfect places to start cutting spending.

As I mentioned, personal finance all comes down to the money we make, the money we spend, and the money that’s accumulated in between. If you want to accumulate more money, you either need to make more, or spend less. That’s it.

I’ll probably write another post about ways to make more money if you really wanna hustle for it. But for now, start trying to find ways to decrease your spending, and you’ll already be thinking smarter than 90% of your friends.

Saving The Right Way

If you can find ways to cut $100 of spending each month, that’s fantastic. You’re already doing very well.

Now the trick is to make sure that you’re doing the right thing with that money, and not simply wasting it on something else.

For this, I’d highly recommend opening a savings account – or several savings accounts – with your bank. Personally, I use ING Direct because they have a great online banking interface, high interest rates, and it takes literally 15 seconds to setup a new savings account.

It’s important to put money aside in a separate savings account – rather than your main checking account – for several reasons. Note that I won’t say it’s because you earn higher interest with a savings account – the interest on most savings accounts barely keeps up with inflation, so don’t think that you’re actually “investing” when you use one.

The first reason to use a savings account is that it makes your savings harder to spend. The money is still there and you can get it if you need to in an emergency, but you can’t withdraw from an ATM or write checks against it (usually). This helps protect your hard work from sudden impulse purchases or regrettable late night spending decisions.

Using a separate savings account also gives you the benefit of being able to watch your savings grow over time. If you know that you’re being frugal and cutting costs, but all you see is a single nebulous checking account, it can be easy to lose motivation and slip into old habits. By breaking your savings out into their own separate account, you get to watch it grow over time. And if you’re a money nerd like me, that’s pretty exciting.

ING Savings Accts It’s even more exciting when you set savings goals. ING Direct allows you to give each account a nickname, and I’ve labeled mine things like “Travel and Adventure” so that I know what I’m actually saving for in each account.

I know that when I get enough in that travel account, I get to reward myself by booking an awesome vacation that I know I’ve earned. I don’t have to feel bad about it since I’ve been saving regularly. It’s guilt free spending at it’s finest!

Don’t Even Think About It

So now you’ve cut your spending and maybe even come up with some savings goals, here’s the linchpin of this entire strategy: you need to automatically transfer a consistent amount of money to your various savings account each month.

Don’t tell me you’ll do it yourself. You won’t. You’ll forget, or you’ll find something you just had to spend it on, but you’ll ‘catch up’ next month. And then you won’t.

Managing your money sucks, so the less time you have to spend doing it, the better. And if you can automate your ideal habits, you’re not only saving yourself time each month, you’re ensuring you stick with you plan, which is 95% of the battle.

If your paycheck comes on the 15th and 30th of each month, you should setup your savings account to automatically pull in money from that checking account on, say, the 1st and the 16th. That way the money is whisked off to your savings before you even think about spending it, and you can ensure you’ll always be saving, without even thinking about it.

Note that this assumes you have direct deposit setup with your employer – which you should. You’re not still going to the bank to deposit checks, are you??

It also assumes the money arrives on time, every time. If your pay isn’t as consistent, then maybe wait a few extra days between when the check is expected to come and when the money is transferred to savings, to ensure your bank doesn’t start a transfer when the money’s not there yet.

Thanks to Jonathan Kim for pointing this out in the comments

Again, ING Direct rocks at this, making it super simple with their “Automatic Savings Plan”. (Have you still not signed up for an account yet??) ING Automatic Savings Plan

If you’re worried about running out of money, start with a very small amount. Maybe only $25 each transfer (ie $50/mo). But just get it going so that you get used to the system.

Over time, you can adjust the amount that’s transferred if you want to save more aggressively. But if not, that’s cool too. Just start somewhere.

In the words of some ancient Chinese philosopher dude:

A journey of a thousand miles begins with a single step.

Save a little bit now, and find ways to cut even more spending over time. As you watch your savings pile up, it becomes almost like a game. How much can you save?


So now you’ve found a way to cut spending and start accumulating more money each month. The next step is deciding what to do with that money once you’ve set it aside, but I’ll get to investing in another post.

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