Saving Money With the 1% Rule

By Jackie Beck   Updated 07/17/2020 at 2:23 pm

How to save up money with the 1% rule written above piggy bank surrounded by piles of coinsSaving your hard-earned pennies can be tough, but it doesn’t have to be that way. If you want to learn how to save money each month, the 1% Rule is a game-changer. In fact, I used it to painlessly start saving money from my salary back when I had a job. About 4.5 years later, I had $89,586.70 to show for it!

That’s…a lot of money! But it didn’t feel hard to do because of the method I used to do it.

If figuring out how to save money — especially a large amount — seems impossible right now, don’t worry. You don’t have to see how something is possible to get started. You just have to believe that it could be possible, and then take action. Act as if. Using the 1% Rule will make it a whole lot easier to start saving money.

What is the 1% Rule?

Put simply, the 1% Rule is all about tiny changes. Making a tiny change — so tiny that you may not even notice it — is much easier than trying to make a big change. (You can use it with anything, but we’ll talk about how it applies to saving money here.)

The key is to keep the change you’re making small. So small that you don’t notice it much or even at all. As it happens, 1% of something isn’t much, so that’s where the 1% Rule comes from.

For example, the tiny black rectangle in the top left corner of this chocolate bar photo is what 1% of the bar looks like:

Chocolate bar with 1% of it highlighted in black to illustrate the 1% rule of how to save money

Could you imagine setting that tiny part of a square aside to eat later? (By saving it in the fridge, for example.) It wouldn’t be that hard, would it?

Because you’d still have this much left to eat right away:

Chocolate bar with 99% of it highlighted in brown to illustrate how to save money with the 1% rule

You wouldn’t miss the amount you set aside. That’s what it looks like to start saving money with the 1% Rule. Only the chocolate bar is your salary, and the tiny part of a square is what gets sent to savings.

It may not seem like much, but it adds up over time. (And you can increase the amount you save 1% at a time as well.) The idea is simple, but the results are surprisingly good.

So if you’re having trouble saving money, start with 1% of your salary.

Here’s exactly how to save money from salary using the 1% Rule

To put this savings method into practice, start by setting up an automatic transfer to savings of 1% of your pay.

If your workplace offers direct deposit, they may be able to split the deposit in two: one part to checking, and one part to savings. If they can’t split it up for you, have your pay deposited to checking and then have the transfer to savings happen after that.

For example, if you earn $923 a week, set up an automatic transfer of $9.23 a week to savings. (Since $923 x .01 = $9.23.)

Chances are you’ll quickly adjust to having just slightly less money available each week. You will naturally cut out something that isn’t of value to you, or not even notice the difference.

How to save more money

Now, $9.23 a week is nowhere near $89,000 — unless we’re talking about a very long time. But it does add up to $479.96 in a year if you get paid weekly.

For many people, nearly $500 is a decent starter emergency fund. But you probably want more — whether you’re saving for emergencies, a house, you name it.

The thing is, that 1% amount is just where you start. The real magic is what happens over time as you keep on saving money.

Because if you don’t really feel the difference much (or at all) in your budget, you increase the amount you’re sending to savings by another 1% — or even 2-4%.

In short, you increase the amount you are automatically sending to savings by 1% every 2-3 months until you’re saving the amount of your income that feels right to you.

And if you get a raise, you can send that increase straight to savings too. You won’t miss what you never saw to begin with, and it’s a great way to bulk up savings.

Then you repeat the process again every so often, until you’re saving up a good chunk of change.

Adjusting to tiny changes in your budget makes saving money so much easier

Just like with building habits, starting small is the key. By doing so, you keep going AND improve things a little bit at a time.

You can do this with retirement savings as well, by increasing the amount you contribute to your 401k by 1% or more at a time. That’s exactly how I saved up $89,586.70. I kept increasing it until I was maxing out my 401k.

Again, the idea is to find the point where you don’t really notice the change, and then gradually increase that by 1% every few weeks or months. This lets you painlessly adjust to tiny changes while having a big impact on your savings goal over time.

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