How to Build a Savings Nest Egg (Even While Broke)

A mountain climber

Living paycheck to paycheck is never easy, but it doesn't have to mean you can't save for the future. Everyone needs a savings nest egg or emergency fund.

The solution is to get prepared now, no matter what it takes. (And know that you aren't alone! One study by the Federal Reserve found that most Americans have $400 or less in cash savings.)

Let's start with one straightforward and relatively simple savings goal: setting aside $20 per week — that's $1,000 a year for emergencies — and focusing on getting to an $80 starter nest egg as quickly as possible. You may be surprised at the financial head start you can get even from this small amount.

So here are several pain-free ways to get to that first “emergency” $80 no matter how crunched you are for cash:

  1. Switch supermarkets. If you shop at a regular supermarket, go instead to a deep discount grocer, such as Aldi. Dedicated savers know that groceries are one place in the household budget where you can cut expenses quickly.
  2. Buy in bulk — but smartly. Let's assume you aren't eating out at all — great for your budget — and everyone in the family is brown-bagging their lunches. No more room to save? Not true. Easily cut out $10 a week by shopping at a warehouse store or bulk section for was many lunch supplies as possible and then portion them out at home for the whole family. Don't have a membership card? Tag a long with a friend who does and pool your groceries. Another alternative is to buy a Costco “cash card” online. This will work just like cash at Costco and you don't need a membership to use it. You might even snag one at a 1-2% discount off face value for a few extra bucks in savings.
  3. Snag food deals. Speaking of groceries, another easy way to save is to plan your meals around whatever meat is on deep discount due to an impending expiration date. Nearly all grocery stores will guarantee its quality 100 percent. (I do this all the time and have never encountered a single quality issue.) Just make sure you use it that day or the next — or simply toss in the freezer. You can easily save $20 a month this way. Learn basic recipes and techniques that are transferrable across a lot of different proteins such as stirfrys, rice bowls and casseroles.
  4. Ditch the gas and tolls. If you commute, find a carpool instead and you'll quickly amass $80 through what you will save in gas and tolls. If you commute to a big city and can't bear to give up your time behind the wheel, look out for new services like Scoop that will pay you to drive other commuters.
  5. Cull monthly subscriptions. Downgrade or cut any service that isn't heavily used by everyone in the family, such as cable television, the large data plan on your cells, a streaming service you don't watch very often. These monthly recurring items may seem insignificant on their own but can add up to a lot together.
  6. DIY as much as you can. One helpful exercise to find room in your budget for emergency savings is to write down everything that you pay for each month that isn't directly related to food, shelter or getting to work. Now cross off everything that you could do yourself instead with a little training and/or patience. There is almost always a cheaper or free way. Examples of things to DIY or find a cheaper option: car washes, manicures/pedicures and clothes for kids who are too young to care about fashion. For toddlers, make it a practice to buy well-maintained but used kids clothes from smoke-free homes in bulk on eBay for a fraction of the price of buying new. (Your toddler will outgrow brand new clothes so quickly anyway!)
  7. Go with giftcards. Buy discount gift cards to purchase regular needs (not wants!) and then put the difference in cash toward your emergency fund. Sites like Cardpool offer giftcards for up to 35% off face value (but note the most popular cards will be much less.) Current offer: Jiffy Lube giftcard for a regular oil change: Face value $25. Available purchase with free shipping for $22. Savings: 12%.

Great work! Now we have our first $80 in savings, or are very close.

Related >> Limited income, big family, major savings: Meet the Economides clan

What's next?

  • Open your emergency fund. Remember, everyone needs one — especially when money is tight. Keep this money within easy reach in case you need it, but not so close you'll be tempted to use it for a non-emergency. For most people this will be a typical high-interest savings account. Online banks almost always offer higher interest rates.
  • “Feed” your fund regularly. Keep the cost-cutting in place and automate an additional $5-20 per week into the fund through regular deposits.

Now that we have the fund in place and a way to get regular payments into it for a rainy day it's time to think about compound interest. This means your interest is calculated not simply on the principal balance but the principal plus interest — that's how your money can grow surprising quickly in an interest-bearing, FDIC-insured account vs. under your mattress.

Example of compound interest at work:

  • Deposit amount: $80 per month
  • Interest rate: .75 percent. (This is what I have currently with my Capital One 360 savings account but there are higher offers out there. Here are the most recent savings account rates.)
  • Balance after 10 years in an interest-bearing account with regular $80 monthly deposits: $10,016.77
  • Balance after 10 years in your mattress: $9,600.
  • Difference: $416.77

Related >> The extraordinary power of compound interest

Still need more inspiration to jump start your savings with just $80? You can also put that seed money to work in other ways:

  • Retirement planning. Put the money into your Roth IRA or whatever other fund you have. (Don't have one? Let this be the seed money.)
  • Open a 529 college fund. You don't need to stick to your own state's offerings just be clear on the tax advantages you might be giving up.
  • Make an extra debt payment. If you have a credit card at 12% interest, the $80 extra you pay today could save several hundreds of dollars in future interest payments.
  • Bulk up your pantry. Here's a post on the frugal virtues of a well-stocked pantry.
  • Cut-rate couture. Watch for end-of-season sales on wardrobe basics you know to be durable and comfortable. You might not have to buy work slacks for a year or two. Or browse a thrift store or consignment shop — again, looking for clothing that's well-made and flattering. What fun to see how far a $20 bill will go, especially on 50-Cent Day. (I'm referring to the price tag, not the rap star.)
  • Discounted movie tickets. Warehouse clubs sell discounted movie tickets, which also make a great gift. Just remember to skip the wildly overpriced popcorn, candy and soda.
  • Annual passes. Choose annual passes to places you know you will go to throughout the year. Museums, zoos, botanical gardens, opera, the orchestra — whatever floats your boat.
  • Warehouse club membership. As long as you are careful in not spending on what you don't need, a membership usually pays for itself. Tip: Get good at freezing out portions as soon as you get home with your bulk purchases.
  • Go green. Replace some incandescent bulbs with LED or compact fluorescent bulbs and trim your electric bill. Faucet aerators and low-flow showerheads reduce both energy and water/sewer bills. If the commode in your abode is really old, consider a water-saving toilet. Wash your clothes on cold.
  • Save on car care. Watch for sales on fluids (antifreeze, windshield washer, a case of motor oil, et al.), filters and replacement wiper blades. If your tires have receding treadlines watch for sales on those, too. (Don't forget Craigslist. A friend bought four high-quality, nearly new tires for $100.)

How would you put $80 to work for your future? Join our Facebook community to learn more.

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