Saving hack: make it feel like spending
I’m a terrible saver.
That’s an unpopular admission from someone who is running a finance blog, but it’s true. Money sitting in a savings or checking account bores me and I almost always end up spending it in one big blow-out shopping spree.
Despite my personal finance shortcomings in the savings department, I’ve managed to buy two homes and made a significant return on the stock market (over 45%, or about $10,000 total) in 2020 at 24 years old. Reaching these goals takes the ability to hold onto money for the long-haul instead of blowing it on cars, clothes, and makeup.
So how do I do it? I learned that the best way to save is to trick my brain into thinking that I’m buying something.
My Recommendations:
1. Lottery-ticket savings (Yotta Bank)
According to an article from lendedu.com, the average American spent $232.64 on lottery tickets in 2018. As a nation, we spent $76,362,627,000 on lottery spending. Why? Our odds of winning the lottery or a slot machine game in Vegas are abysmally low - so low, in fact, that doing these activities should be considered equivalent to withdrawing cash from the ATM and proceeding to immediately light it on fire.
These games are addicting (and designed to be that way), so telling you to stop spending money on lottery tickets or casinos is easy to say, but harder to do. But what if you could replace the habit of lottery spending with something just as fun but more likely to actually win you money while saving the original money that you play with? Enter: Yotta Bank.
Yotta Bank is designed to entice people who would spend money on lottery tickets to save their hard-earned cash instead. Every $25 you save into the account is essentially buying you a ticket into their daily drawings - but the $25 stays safely in your savings account, regardless of the drawing outcome!
These tickets accumulate over time with every extra $25 you save, increasing your odds of winning each week (note: if you withdraw the cash later, you’ll lose the ticket). If you don’t win anything, Yotta will gift you a ticket for free to help you out in the next week’s drawing.
It’s a great strategy because you’re “buying” a ticket, but really saving for yourself! When you’ve accumulated enough tickets to win prizes more often, the drawings become more fun. You can even get a friend or partner involved and watch the daily drawings together - my boyfriend and I do this almost every night.
This is an actual screenshot I took last week when I won $10! I had referred my boyfriend so we each got an extra 100 tickets, which helped both of our chances of winning
Want 100 free tickets? Sign up with my referral link here!
2. Stocks (Robinhood)
This was the first way I learned to “spend-save” and is quite profitable. As I mentioned at the beginning of this article, I earned almost $10,000 in stock growth and dividends between March 2020 and December 2020 at an over 45% return on investment (check back for a blog post on that later this month).
Whenever I’d feel the urge to shop, I’d buy stocks instead of shoes. Admittedly, this is riskier than my first recommendation of a savings account because the stock market changes daily and you could lose money. BUT, if you pick your stocks right, you can buy a share in a company, earn the growth from that stock going up at an average of 6% or more, and earn dividend income.
Whenever the urge to shop strikes, buy more stocks by investing more cash OR shuffle your stocks around! If I was bored with my portfolio and wanted to buy something but didn’t have the extra cash on hand, I’d sell what was underperforming, shop for new stocks by researching around, and then use the money from what I sold to purchase those new, hopefully better-performing stocks.
All of this I did on Robinhood, which is free to use. Even though it’s free, I do pay for the gold version of Robinhood - which is $5/month. I like the gold version because it gives you a higher instant deposit limit based on your portfolio value rather than the standard $1,000 instant deposit limit. This means that I don’t have to wait for the majority of my money to transfer from my checking account to Robinhood before I can use it - once I start a transfer, (usually) all of the money is available for me to buy stocks with even though it will be another 1-5 days before it’s deducted from my checking account.
Being able to react quickly to market changes can lead to much larger return - if a stock is spiking, you’ll want to jump on the opportunity to ride the wave up as soon as possible. While you can definitely stick with the free version of Robinhood to get started, which is what I did when I was new, spending $5 per month to reach $10,000 profit in 9 months was very worth it.
Want a free stock? Sign up here!
3. Peer-to-peer lending (Funding Circle or Prosper)
Instead of shopping for a new decorative pillow or furniture you don’t really need, why not “shop” around for a business you believe in or a cause you want to support? Lenders such as Funding Circle or Prosper will let you look through loan requests made by others and decide for yourself if you’d like to loan them the money. You’re essentially spending money on someone else - and then getting all your money back plus interest!
While it’s fun to shop for projects that are interesting or meaningful to you, this also has an undeniable “doing-good” element. Giving a loan to someone on these platforms not only helps you earn money from the interest as it’s paid back, but it could change someone’s life by giving them the opportunity that they need to start a business and set themselves up for financial success. Just be careful with this one - people can, unfortunately, default on their loans, putting your ability to get your money back at risk.
4. Real estate
If you’ve read my other posts, you’ll know that real estate is my preferred method of long-term investment and I already own two properties at 24 years old. It’s perfect for this “spend to save” hack because it makes your money really hard to access - you have to sell the house or cash out refinance to get any of it back! Buying a home is also a long process, so you get to live the shopping feeling for about a month or more as you wait to close on the house. While it’s a more hands-on way to “spend-save” than the options above, the reward is rental income and property appreciation (forecasted to be 10% where I live). You’re also forced, via paying the mortgage payments’ principal, to “buy” more equity in your home each month, continuing the savings benefit as long as you own the house.
When people think of investing in real estate, it can seem overwhelming and out of reach for those just getting started - but it doesn’t have to be! You can get in on the action in a lot of different ways that will help you reach the down payment amount to eventually own your own property. Here are 3 ways to invest in real estate for all levels of starter funds:
REITs
What: A REIT, also known as a Real Estate Investment Trust, is a company that invests in real estate and earns a profit (hopefully) from their investments. You can buy shares of these companies on the stock market for a wide variety of prices (just like you would buy stocks for any other company that’s publicly traded). You’ll earn dividend income plus any growth in the value of the stock. If you want to learn more, this is a great website to give you more info: https://www.reit.com/
Cost: Varies (I’ve purchased shares in REITs at $2 per share)
How: Any stock market exchange you use likely has REITs available to purchase, I personally use Robinhood because it doesn’t have any fees. Sign up with my link here & we’ll both get one free stock!
Example: NRZ (New Residential Investment Corp). Closing price the day before publishing this article: $9.48 per share
Pros: Cheap options available, more liquid than other options if an emergency strikes
Cons: No control over what properties are invested in or how they are managed, being more liquid makes it poor for saving as you can easily sell the stocks and spend the cash
Crowdfunding apps
What: If you’re looking for a more hands-on approach and want a say in what properties you invest in, you may want to look into a crowdfunding app for real estate. Within the app, you’ll get to look over several buildings, residential and/or commercial, seeing photos of vetted properties you can invest in alongside information such as location, potential return, and type of home. I like this for the spend-saving theme of this article because you get to “shop around” for properties on the app - only instead of spending 20% down when you find something you like, you spend $500! It’s also a longer term investment, usually 3-5 years of commitment, so you can’t withdraw your money on a whim - guaranteeing it’s out of sight, out of mind. Well, except for when those passive income checks roll in!
Cost: $500 minimum or more depending on the app
How: If you’re interested in this style of investing, check out this great round-up of crowdfunding real estate apps by Investopedia here.
Pros: More control over portfolio, not very time-intensive
Cons: Less liquid if an emergency strikes, plan to stay invested for at least three to five years
Buying your own property
What: If you have more time on your hands and want to keep all the profits for yourself, consider purchasing a property to live in or rent out. If it’s a rental property, you’ll earn rental income each month, and if it’s a home you live in, you’re at least benefiting from the appreciation every year while buying more equity with each mortgage payment you make. I purchased a home for around $356,000 in March 2020 and Zillow estimated its value at $384,865 just 9 months later - that’s $28,865 I earned in less than a year just holding the property! Add the rental income ($2,100 per month before expenses) and the equity I get every month from making my mortgage payment (around $300) and you can see why I believe in real-estate investing so strongly.
Cost: 3-20% of purchase price, plus recurring monthly mortgage payments and repairs
How: This strategy of investment does require more work. Not only do you need to research the area you’re buying in and find the right property, but you also need to qualify for a loan on that property (unless you’re buying with cash). This takes a good credit score, proof of a steady income, and a significant cash reserve.
Pros: Highest level of control over what you invest in and how the property is managed, you keep the profits to yourself instead of splitting with other investors, if you choose the property right and manage it correctly, profit can be very high
Cons: Very time-consuming to go through the home-buying process and to manage the property afterwards, high-cost of entry, and ongoing costs such as repairs and monthly mortgage payments each month
I highly recommend real estate investing as a vehicle to building wealth. In fact, the whole reason that I follow the other options in this article is to eventually reach a down payment amount to buy my next property.
5. Collector’s items
Last but not least, if the options above just don’t satisfy that shopping need and you want to put your hands on a physical item, try to buy something that will hold or even increase in value. Some examples of items that can increase in value over time are:
Comic books
Stamps
Coins
Action Figures
Trading cards
Sports memorabilia
Watches
Artwork
Designer purses or shoes
Celebrity items like autographs and personal belongings
This will give the shopper in you some relief, but choose carefully! This option comes with a lot of risks - a turn in what’s considered popular, damaging or losing the item, or any other number of unfortunate events can put getting your money back some day in jeopardy.
That’s all, folks! I hope that if you struggle with saving, too, that this gives you a new strategy to try. Have any other ideas on how to “spend” while saving that I didn’t include in the list above? Leave a comment below!