my two cents
By Charlotte Cowles, the Cut’s financial-advice columnist. In addition to “My Two Cents,” she writes about work and parenting for the site. Previously, she was the senior features editor at Harper's Bazaar and a senior editor at the Cut. She was also the editorial director for MM.LaFleur. Her work has also been published in Glamour, Art in America, Politico, and other places.
Photo-Illustration: by The Cut; Photos: Getty Images
Doing the Mostis a special series about ambition — how we define it, harness it, and conquer it.
I’m 26 years old and make $18 an hour working as a pastry chef at a restaurant, which is actually a pretty decent wage for my field. (I also get health benefits and paid sick leave.) I like my job and my co-workers, and I hope to move up in the restaurant industry. But for now, it’s really difficult for me to save any money. My rent is $1,100 a month with roommates. After I pay all my bills — rent, phone, groceries, student loans (and before you ask, no, they’re not on pause because they’re private, not federal) — there just isn’t much left over. I could save maybe $100 to 200 a month at best.
I know I should have a cushion for emergencies. Plus, it would be smart to invest in the future. But it also seems silly to give up the basic niceties that I can afford, like a wedding gift or the occasional beer or a trip to visit my family, just to save what would probably amount to about $1,000 a year. In other words, the difference between saving nothing and saving a pretty small amount would make me pretty miserable. And especially after the past few years we’ve had, I don’t know if that’s worth it — I want to enjoy my 20s. So how do I make the math add up? Is it possible to save without cutting all the pleasures out of my life? Or would it really be that bad if I put off saving until I’m hopefully making more money in a few years?
I understand why saving doesn’t seem worth it to you right now. Your efforts would be wildly disproportionate to the results. Sure, you could spend the rest of your 20s scrimping and hoarding a couple dollars here and there, but you’d miss weddings and birthdays and dinners and drinks with your friends and family and colleagues — and you’d only have a couple thousand dollars to show for it. That amount is nothing to sneeze at; it’s more than what many Americans have on hand. But if it comes at the expense of important relationships and milestones — not to mention your basic enjoyment of life — what’s the point?
Still, saving a little is better than saving nothing. And the habit of saving is most important of all. That’s why you should focus less on the amount you’re saving and more on the regular practice of setting money aside, even if it isn’t much.
This probably seems counterintuitive. Most of us think that goal-setting is a crucial part of self-motivation — a specific dollar amount gives us a shiny target to work toward. But researchers have found that’s not true and can even backfire when people fall short of their goals and give up. In one study, people who didn’t hit their monthly savings benchmarks wound up spending more than those who didn’t set goals at all because once they’d failed, they threw in the towel and spent with abandon. (This is also known as the “What the Hell Effect” — the human tendency to fall off the wagon completely once you stray from your resolutions, like finishing the whole box of cookies after you cave and eat one.)
What’s more, studies find that abstract goals — like “save more” or “invest for retirement” — can also be self-defeating. That’s because more immediate priorities will always trump vague future needs. You’re not going to skip a good friend’s birthday dinner just because you might want that money for a hypothetical emergency years from now or to pay for a nursing home when you’re 90.
Instead, psychologists have found that people are more likely to save money if they make it a consistent part of their lifestyle, no matter their income. This is similar to any good habit: The best way to keep doing it is to make it doable. Just like you’re not going to run a marathon if you hate jogging, you’re never going to save money if it prevents you from spending important time with your loved ones. So you have to find a way to make saving more gratifying and less disruptive to your life. It shouldn’t exhaust your willpower.
The good news is that there are a lot of tools to help you with this, says Kyle McBrien, a certified financial planner with Betterment, a financial advising platform. “Automating your savings is a great way to make it happen without feeling like you’re depriving yourself,” he says. “Getting started is the hardest part — the first $1,000 is always the toughest, but know that it does get easier.”
Plenty of people (including me) automatically deposit a chunk of money into a separate savings account every month, ideally when their paycheck first hits so they don’t even miss it. You could try that, but there are additional ways to make saving money even more incremental and sneaky, including apps and debit cards that will round up all your purchases and put the spare change toward a savings or investment account. For cash savings, you could try Qapital or Chime; for investing, check out Acorns or the Robinhood cash card. I personally use Digit, which withdraws bits of money from my checking account every day and squirrels it away in a separate account so that I don’t notice it’s gone. (Some of these services do involve a fee, up to $2.99 a month, so do a little research before you pick one that’s right for you.)
These tools are a good way to get your savings off the ground. You probably won’t save a ton, realistically, but you’ll amass something, and you’ll prove to yourself that you’re capable of it. Once that happens, the next step is to figure out a bigger savings plan or strategy —like building up an emergency fund and beginning to invest.
I’m not going to pretend that by changing your “money mindset” or making minor tweaks in your lifestyle you’ll be a millionaire by 35. That would be false. In reality, there are only two ways to save at a higher rate: You have to spend less or you have to make more. Right now, it sounds like you’re being squeezed on both ends here, especially the spending part — you live frugally, and cutting more expenses would make your life significantly less enjoyable. You also say that you love your job, which is great! But if you do want to become financially secure (i.e., save more), you’ll probably need a higher income.
I know you’re paying your dues in your industry, and that’s admirable and will hopefully pay off. But if there’s a way to supplement what you’re making even a little bit — by dog walking, catering, babysitting, whatever — so that you can bank the extra dollars, that could be the difference between handling an emergency (an expensive medical bill, for instance) and being forced into debt over it. What’s more, it could allow you to invest and take advantage of compound interest over time.
(One other suggestion: Many private lenders are offering breaks on student loans right now, even if they aren’t freezing payments entirely. It’s worth calling yours and seeing if they can lower your monthly bills for a while so that you can bank that extra money instead.)
In addition to saving cash, McBrien advises that you look into creating a Roth IRA, which is a type of retirement investment account that can save you money in taxes and allows you to withdraw money after five years (unlike most other retirement accounts, which penalize you for withdrawing money before you reach retirement age). It’s a great option for a young person who doesn’t have a retirement plan through their employer, which it sounds like you don’t.
Consistency is key here, but at the same time, don’t freak out if you backpedal sometimes. Remember, the habit is more important than the amount at this point, and you’re playing the long game.
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