Micro-Saving: How to Grow Your Nest Egg from a Small Account

For most people in the world, starting to build wealth is extraordinarily difficult. In particular, volatile incomes can rapidly deplete the savings balances of even frugal people.

Unfortunately, people facing tight financial situations face an almost impossible situation. Savings are more important than ever when money is tight, but it’s harder to find the money to save.

This article is designed to give a few ideas for people with small or volatile incomes to use “micro-savings” to grow a nest egg. These ideas aren’t any substitute for growing your income, but they can provide a stopgap.

Whether you’re a student who isn’t earning a full-time income, a new graduate facing a lower-than-expected income, or someone who has spent years earning an insufficient income, you may be able to apply some of the ideas to start growing wealth in your situation.

If you want to jump right into saving, check out Chime. They are a bank, but have a great app, and allow you to enroll in automatic savings to automatically save 10% of every paycheck. Check out Chime here.​​​​

One of the craziest statistics that I’ve ever seen on the importance of savings came from the Urban Institute’s 2010 Paper entitled Can Savings Help Overcome Income Instability? In this paper, liquid savings (think cash or money in a savings account) of just $2,000 to $10,000, reduced the frequency of financial hardships by 10.3%. By comparison, increasing income by $1,000 per month reduced those hardships by 5.3%.

If your goal is to improve your quality of life, grow wealth, and find better opportunities, building up savings is the key. Nobody is saying this is easy, but it is necessary. Once you’re covering basic necessities (such as food, basic shelter, and medicine), saving needs to be the next priority.

If you’re convinced of the value of savings, the best place to start is by opening a bank account. A bank account with no monthly fees will allow you to start saving, and reduce the hassle associated with cashing or depositing checks.

Two banks that offer fee-free accounts are Simple Bank and Chime. Both banks also offer great savings features that can help you get started with savings. To qualify for these accounts, you must be at least 18 years old and a citizen of the United States.

If you don’t qualify to open a bank account in the United States, a good alternative is the Bluebird Account by American Express and Walmart. This account also has a “set aside” option that allows users to get started with savings.

Once you have a digital place to put money, it’s time to start putting money there. The first bit of savings is likely the most difficult to get into place. Once you have a savings habit in place, growing the account becomes easier. Here are a few ideas to get your first $100 in a savings account:

• Sell a few items that you no longer need. Deposit the savings right away.
• Skip meals and coffees out for a whole month. Put the savings into the account.
• Find a way to cut back on a regular bill (for example, lower your cell phone bill or negotiate for a lower car insurance rate). Put the savings into your account.
• Try to work overtime or take on a side job just to put the money into savings.
• Add an extra (paying) roommate to your house to cut back on housing expenses. Put the savings into your account.

Once you’ve got some money in a savings account, the key to growing wealth is to keep the money in the account, and to add more money to the account. The two most important factors for this are accountability and automation.

Accountability is the idea that an individual can use social pressure to prioritize saving over spending. I have to say, I’ve heard of some pretty crazy methods for this.

One man I know gave $500 to his mom and told her it was his emergency fund. Now if he wants to tap this cash, he needs to ask his mom.

One friend was a member of a savings club (called a sou-sou) that required her to contribute $50 per week to the club. Once every 12 weeks, she would get paid $600. If she ever missed her payment, she would have been kicked out of the club (talk about pressure).

I’ve heard of people taping a picture of their kids to their debit cards, so they remember to save, so their kids can have a better life.

As important as accountability is automation. With volatile incomes, automating savings can be a huge challenge. However, automating a small amount of savings can go a long way. For example, saving $25 per week yields $1,300 in savings over the course of a year. A savings account with $1,300 puts you ahead of more than half of Americans when it comes to savings.

The easiest way to automate savings is to set up a separate draft straight from your paycheck. If you work a regular job. Set up a $25, $50, or even $100 deposit directly into your savings account. The remainder can go to your checking account. You could also set up an automatic 401(k) contribution if your employer has that option (though 401(k) funds are less accessible than other funds).

Check out our favorite automatic savings apps here.

Getting money in the bank is the key to building wealth. That means you’ll need to start saving as soon as possible, even if money is tight. What will you do to start saving and building wealth?