Where does the money to save come from?

Saving money for your emergency fund or to invest comes from the same sources:

1. Your regular salary and commissions
2. Gifts from family for birthdays and Christmas
3. If you have a regular job, you might get a Christmas bonus or profit sharing money.

Perhaps you can think of others sources of income.  Take your income and subtract your average expenses and save the difference.  The rule is extremely simple.  Spend less than you earn. In fact, if you want to retire early one day or be financially independent and do what you love instead of working for the paycheck, spend much less than you earn.

Do you spend the same or more than you earn? You are probably miserable and either regularly borrowing from family and friends or you are making payments on one or more credit cards.

Sure you might be able to afford the payments right now, but you are also paying a lot of interest. That's money that you could have invested and could have been working for you. Instead you are working for the bank or credit card company!

Perhaps you don't make much money and even though you don't owe the bank you don't have savings. In this case, it is time to cut back your spending at least for 6 months while to build up your savings fund.  

Identify daily or near daily small expenses and also look for ways to spend less on housing, food, and transportation. Can you walk or bike to work?  Could you sell the car and take the bus or subway instead? Could you cook on Sunday and keep portions in the freezer to take with you for the week or just pack a couple sandwiches?  Even small amounts add up!  Don't forget to cancel any services you don't use and magazine subscriptions that you rarely read.  Downgrade to basic your telephone and cell phone. Better yet, cancel the one you use less.  If your boss lets you surf the net at work perhaps you could cancel your internet service at home. Cancel or downgrade your cable television service. 

A good savings goal would be 30% if you have children and 50% if you don't. Later you can try to save more. The higher your income, the easier it is to increase that %.  It doesn't really matter though. If you work you can save if you follow a plan that limits you to the basics for a while. Yes, I know most personal finance people say to save 10% of your income, but do you really want to wait 10 months to have one month of money for your emergency savings or for investing?  That's extremely slow and discouraging. At that rate you'll be lucky to retire at 65 depending on the market and when you started saving/investing.

As you build up your savings, make extra payments to your credit card(s). The interest you save next month can be applied as increased payments.  As you pay off your credit card debt don't buy more luxuries! Don't dig yourself any deeper in debt!

Finally lets say you already have a bare bones income and you already share your apartment and don't have any special bills. Every time you get extra income like gifts, profit sharing, or a Christmas bonus, put all of it into your fund and/or against your credit card debt. Don't give up! You can do it!

When your emergency fund is complete and your credit cards are paid off you'll be ready to invest what you don't spend every month including all the money that used to pay interest you owed.   You could alternatively invest a little while paying off debts, but in that case you are guessing that your investments will earn more than you pay in interest and you really don't know!