"I don't need to save any more money," said no one ever. We could all save a little more. Whether you want to save for a big purchase, or you want to save to get out of debt, saving is a part of everyone's lives.
I blogged previously about how to get started saving (see "I Want to Save, but Where Do I Start"). In today's blog, we will take the next step. I'll be giving you some easy tips to start saving, after you have created the saving pre-work.
Saving tip #1: Create a budget
Creating a budget seems like the easy part, but a lot of people create budgets wrong. Most people look at their historical expenses and plan or budget to spend the same amount of money in the future. For example, in January and February, I spent $1,000 on expenses, so I will budget that amount for each month in the rest of the year. Doing this means we are continuing the same budget habits as we had in the past. What if some of the expenses in January and February aren't necessary expenses?
My suggestion is to build a zero-base budget. What is a zero-base budget? It is a budget that includes only necessary expenses for each period. Write down all of your essential expenses and include only those expenses in the budget. After you have identified your essentials, see how much money is left over. Have you met your savings goal? If yes, awesome! If no, look back through the essential expenses and see if there is anything you can cut out from the budget. Can you renegotiate a recurring expense? Can you be more efficient with the utilities in your home to reduce your utility bills? Make sure you really take time time to analyze your essential expenses and see where you can shave off some extra expenses to save money.
Saving tip #2: Set a goal
Research shows that people perform better when they are committed to achieving a particular goal. Whatever your goal may be, make sure it is defined. Don't limit yourself. While your goal should be attainable, it should not be something that will be easy to achieve with little to no effort (we will talk about small goals in the next tip).
Many people have heard of creating SMART goals. If you haven't, SMART goals are goals that are:
Specific
Measurable
Achievable
Relevant
Time-bound.
If your goals have these characteristics, you have completed a huge step toward meeting your savings goal.
Saving tip #3: Set smaller goals within your overall goal
If your saving goal is a large goal, which I hope it is, you may want to break that goal down so you can experience some small wins along the way. What if your goal is to save $25,000 in one year. Do you want to wait 12 months to celebrate achieving your goal? You definitely can, and I believe it will be a big celebration at the end of the year when you achieve your goal, but what about setting some smaller goals that you can celebrate along the way?
Maybe paying off one of your credit cards so you can save more each month is a part of your savings plan ... celebrate when that credit card is paid off! Maybe you want to find a cheaper car insurance provider to increase your monthly savings ... celebrate when you have the new car insurance plan. Maybe you plan to eat out in a restaurant three times a month, instead of four. If you change your habits and only eat at restaurants three times in a month ... celebrate your change (but not by going to a restaurant haha!).
You get the point. If you set smaller goals and celebrate your progress toward those goals, you will see small wins along the way and it will keep you motivated to continue pushing forward toward your overall goal for the year.
Saving tip #4: Use cash envelopes
If you plan on spending $100 per month on eating out a restaurants, but you pay for everything on a debit or credit card, it becomes difficult to track your expenses from the month. This is where cash envelopes come in. At the beginning of the month, put the amount budgeted for a particular expense in an envelope in cash. That could be $100 for eating at restaurants, $50 for shopping at Target, $200 for groceries. If you put the money in the envelopes at the beginning of the month and only spend money the money in the envelopes on the expenses, you will know when you're out of money for that particular expense.
If you are disciplined and only use the money in the envelopes for your expenses, this could be a very effective way to help you save. Once the cash is gone, the expenses have to stop. There's no option to go over budget in this scenario.
Saving tip #5: Automate your savings
This one has helped me save so much money! Automating your savings help you set it and forget it. If you have budgeted to save a specific amount each month, why not set up a process so that amount is automatically transferred from your checking account to a savings account. This way, you are almost guaranteed to save the specified amount.
This works in a similar way to the cash envelopes. If the money is moved from your checking account, you can't spend it on your everyday expenses. It's like the saying "out of sight, out of mind", but we should say, "out of checking out, out of spending."
Saving tip #6: Shop around
Many people shop around for the best price on shoes, clothes, or services, but a significantly fewer number of people shop around for some of our largest expenses. Car and home owner's insurance, electricity providers, and cable/internet providers. Make sure you are comparing prices on all of these expenses and getting the best deal. We've all seen the GEICO commercials that say they can "save you 15% or more on car insurance." Why don't you check it out? Can they really help you save 15% on car insurance or is there another car insurance provider that is cheaper in your state?
I don't have GEICO car insurance, so this is not an advertisement for this company, I am just trying to drive home the point that we should be shopping around for as many expenses as possible. Maybe tackle one expense per month and see how much you can save on a monthly basis by shopping around for the best-priced provider.
Saving tip #7: Cancel unused subscriptions
This one should be a no-brainer. If you don't need or don't use the subscription cancel it. While it seems intuitive, many people hold on to unused subscriptions because it monthly expenses are on auto-pay, and most of the time, the monthly expenses are small enough that they don't cause a severe impact on the budget, so they are ignored.
Make an inventory of everything you're subscribed to and see if you cancel the subscription. Once you make this list, you may be surprised to see just how much you spend each month on subscriptions that you don't use.
Saving tip #8: Ask for discounts
My mentor once advised me to ask for discounts everywhere I went. While the advice shocked me, I trust my mentor so I did it. I went to get coffee from Starbucks, asked for a discount, and the barista said "the most I can do is 10% off." I'll take it.
I called my credit card company and asked for them to waive the annual fee on the card, and they were able to cut the fee in half! (Side note: I only advise using credit cards with annual fees when you know you will earn significantly more in rewards than the fee. I will talk more about this in a future blog post).
I asked my gym if they offer any corporate discounts on the monthly membership. They said if there were at least 10 people from the same company, they would offer $10 off per month. I sent an email to my colleagues asking if anyone was already a member of this gym and found that 22 people were already members of the gym. We all provided a copy of our ID badge, and were able to get $10 off per month.
I was completely shocked that I got these discounts, just by asking a question. My grandmother always used to say "closed mouths don't get fed," and I guess she was right.
If you want a discount, ask or it. The worst they can do is say no. And "no" doesn't hurt any of us. It just propels us to move on to the next opportunity to save.
Saving tip #9: Think "should I afford this" not "can I afford this"
When you're on a mission to save a specific amount, you have to change your thinking. Even if you are able to afford a purchase, think about if you need it. Ask yourself should you purchase the item and why you want to purchase the item. If the item is a necessity, yes, the purchase may be warranted. But if you're making the purchase only to impress a friend or post flashy pictures on instagram, is it worth it?
Two tips I give myself when thinking about purchasing something that was not planned.
I never buy the item on impulse. I will wait at least one week before I make the purchase. If it wasn't on my radar to purchase in the first place, waiting one week to think about it won't hurt me.
I think about the number of hours I would have to work to pay for the item. Even if you are salaried, you can think about your hourly rate, and then compare that to the price of the item you are thinking about purchasing. For example, if you want to buy a pair of shoes that cost $800, and you make $10 per hour, is that pair of shoes worth working 80 hours so that you can purchase the shoes?
Changing your thinking to "should I afford this" instead of "can I afford this" will help you eliminate many wasteful expenses and increase your saving.
Saving tip #10: Get out of debt
I think this goes without saying, which is why I saved this one to the end. Hopefully, if you follow all of the tips above, you will be able to allocate some of your savings toward paying off debt.
Getting out of debt is especially important if you are carrying a balance on high interest credit cards. Credit card interest is a true waste of money. You get little to no benefit from the interest paid, yet the credit card companies are able to make so much money off of you. When you are getting out of debt, focus on the highest interest debt first, so you can stop wasting money on interest, and start increasing your savings.
Hopefully, you'll be able to try out some of these savings tips to meet your savings goals. If you ever get stuck or have any questions, leave me a comment and I will get back to you.
Until next time, stay S.M.A.R.T. about your finances!