Is it possible to save money when you have no money to save? This is an interesting question that I was able to answer and test for myself during the last few months.

Six months ago I had no money saved, not even a hundred dollars. It’s not that I was spending all of my earnings, but rather I was busy paying off taxes, plus I was moving to a new home in a new country and I had to pay an advance plus other things. Not my ideal situation financially speaking.

Despite that situation, I was able to implement a simple, easy to follow plan that allowed me to save some money each month. I didn’t really invent anything myself, but I think that everyone could benefit from this system, so I’m sharing it here.

Update: I should also mention that I used this method to pay more than 20,000 euros of debt (27,000 USD dollars) in 2008/2009. It really works.

Advantages of saving money

Before showing you the plan, I’d like to tell you what I believe are the major advantages of saving money with this method:

  • Less stress. By having a saving account with enough money to cover many months or years worth of your current expenses, you’ll feel less stress during the day. Even if you’d get fired tomorrow, you’d know that you’d have enough money to survive several months, and enough time to find a better job. After applying this simple method, this confidence will become a reality.
  • More discipline. The average person finds happiness through buying stuff, lots of stuff. When the average person receives a bonus or an increase in their salary, they quickly start to think about how they can spend those money. After starting this system however, you’ll quickly change your relationship with money. You’ll start to feel happy when you’re saving money rather than when you’re spending them. This alone, will allow you to become financial independent or rich.
  • You’ll get out of debt. When you start saving money this way, you’ll inevitably get out of debt, often faster than you ever thought possible thanks to the financial skills that you’ll learn by simply practicing this simple system.
  • Higher quality of life. Once you’ll have more financial freedom and you’ll have built enough discipline toward spending money, your quality of life will improve substantially. The decisions you’ll make about simple and complex situations like wherever or not to buy something, will be more thoughtful. You’ll develop the financial intelligence skills that will allow you to reach the top 20% of the population.
  • You’ll attract more money. Once you’ll understand and respect the value of money, you’ll start to receive more of them. The law of accumulation says that the more you have about something, the more you’ll ever have. The more money you’ll put apart, the more opportunities will be presented to you, and the more money you’ll make and save.

The system I’m about to explain is very simple, yet effective. The good news is that it works for everyone, no matter what their income is or how much debt they have to pay. When I first started with this method six months ago, I had zero savings, and a lot of expenses. Today, six months later, I reached my first milestone, which is the equivalent of one month worth of expenses, for me, and for my girlfriend. My goal is to save the equivalent of six months worth of expenses within the next year. Here’s how.

The plan, how you can start saving money today

The key principle of this system is to save something each month. How much is up to you based on your current situation, but you can start with as little as $20 or $30 a month. You can certainly save that amount of money each month, can’t you?

In my case I am saving 100 euros per month (starting with 200 euros from next month), which is the equivalent of about 135 US dollars. Not a lot of money, but enough. Remember that it’s not the amount of money that you decide to save that will eventually make you financially independent, but rather the process of doing it. Once you start doing it, everything will follow.

Here’s how the process work:

  1. Before anything else, you need a separate bank account for your savings. I chosen ING Direct where I can withdraw the money at any time if I need, but you can use whatever bank you want. I’m not an expert and I accept feedback. Anyway, the point is that you should have a separate bank account for your savings, otherwise you’ll be tempted to spend them and it’ll be difficult to keep track. This point is very important, don’t skip it.
  2. When your bank account is set up properly, put your first investment in it. It can be as little as $20, or whatever you can afford. Those will be the first money toward your financial independence.
  3. After you made your first investment, decide in advance a day when each month you’ll put some money into your saving account. You can start with $20 a month if you want, but make sure that you put something each month. My advice is to choose a day just after you receive your paycheck in order for you to make less excuses.
  4. Month after month, as you begin to save more and more money and you feel comfortable doing it, increase the amount that you put into your savings account each month. For example, if you were previously saving $20 a month, you can increase to $30 or $50.
  5. When you receive a bonus or you feel comfortable doing it, put what you can into your savings account. By the law of accumulation, even if you decide to save $100 a month, after one year you’ll have more like $2,000 rather than just $1,200.
  6. Finally, figure out how much money you need to live comfortable one month, including all the expenses that you currently have, and make a goal of saving the equivalent of six months worth of your expenses as soon as possible. It’ll probably take you one year or more to do this, but when that time will come you’ll be glad you started today.

If you follow this system, I’ll guarantee that you’ll feel better, have less stress, and eventually reach financial independence in the long term.

If for some reason during one month you have lots of expenses and you feel like you would not be able to save your usual amount of money, cut it in half, but save something anyway, even if it’s just $10. The process of doing it is always more important than the amount that you decide to save.

When to use the money you saved

Ideally, you should never touch those money. Those money are your private insurance that you’ll use whenever you lose your job or when you’ll have a major challenge in your life.

If you have debt to pay, don’t use those money. Instead, open a separate bank account and do the same process. You may feel like you’ll be saving less this way, but you’ll get out of debt sooner anyway.

What do you think about this system? Are you already using something similar? In a future post I’m going to write about the actual process of spending money and gaining financial intelligence.