5 Easy Ways to Save Money

easy ways to save money

 

The habit of saving is itself an education; it fosters every virtue, teaches self-denial, cultivates the sense of order, trains to forethought, and so broadens the mind. –T.T. Munger

Here’s a fact: It’s much harder to save these days.

The culprit: FOMO (Fear of Missing Out).

Case in point: The latest batch of iPhones (the XS series) were released a few days ago. And as with any new Apple release, people line up and spend entire nights outside the Apple store, just to make sure they can get their hands on one.

They don’t care if IPhones cost an arm and a leg, even with prices above the thousand dollar mark.

Their “old” phones are barely a year in their possession yet they always manage to find reasons to justify the upgrade.

But I can’t blame them, really. With social media showing them snaps of people proudly displaying their newest toys, they can’t help but feel that tinge of jealousy or feeling of being left out. “I want one too!”

As they say, “FOMO is real”.

But why bother discussing this in the first place? What does it have to do with saving?

Here’s the answer: Because the “how” part of saving is easy. The hard part is teaching yourself the “why”.

If you truly want to make saving money a part of your life, you should start with changing your mindset.

Don’t get caught up in keeping up with the Jones's. Focus on purchases that you truly believe are important and give the most meaning in your life.

Again, the “how” part is easy. In fact, if you simply do these 5 simple steps, you’re on your way to experiencing true wealth.

Pay yourself first

George Clason’s seminal book on how to build wealth, “The Richest Man in Babylon”, stresses the importance of “Fattening thy purse”.

To achieve this, he wants us to pay ourselves first. He recommends that we save at least 10% of our income before paying anything else. That includes taxes, bills, and debt.

It today’s day and age of technology, paying yourself first is pretty easy. It could be simply contributing to your retirement plan through work or setting up automatic withdrawals from your checking to a savings account on a monthly basis.

Track your expenses

“What gets tracked, gets managed.” If you truly want to understand how to properly save, you have to know where your money is going. You’ll be surprised at you how much those $4 lattes are really costing you when you calculate it on a monthly/annual basis.

Suddenly, what seemed like harmless little treats for yourself are actually huge money drains that could’ve been allocated to more urgent and important expenses, like paying off debt or putting money in savings.

Set a budget (Use 50/30/20)

Most of us fall into the trap of getting into a reactive state when it comes to spending. We get a paycheck, spend a chunk of it on the essentials and then simply spend the rest on whatever comes our way. That’s us being reactive to whatever expense pops up. What we don’t realize is that most of these “expenses” are actually stuff that we can easily live without.

But, since we don’t have an actual plan on how to spend these monies, they always end up getting used on random stuff.

To help you out, here’s a popular budgeting method that is proven to work: The 50/30/20 rule.

In a nutshell, this rule recommends we allocate our money like this:

50 percent = Needs (Food, Housing, Utilities, Health insurance, Car payments, etc.)

30 percent = Wants (Dining out, shopping, hobbies, etc.)

20 percent = Savings

By knowing how much you can spend, you’re able to plan ahead and ensure all important expenses are taken care of. Plus, this breakdown makes sure your savings account gets filled first.

Make saving automatic

One way to “discipline” yourself into saving is to make use of automated tools. Why do it? Simple–without the “extra” money lying around, you won’t be tempted to spend it. Even if you still can’t come up with a spending plan, this step can bring significant improvement in reducing your expenses and increasing your assets.

There are plenty of apps and online services out there that takes the work out of saving. Qapital and Digit, for example, are both easy very easy to use and setup on your smartphone.

Pay off your high-interest debts

In general, it’s better to pay off your high-interest debt first before putting money into saving – anything greater than 5-6% interest. This is because it’s likely that the interest you pay on this debt is higher than the interest you could earn on saving it.

While this does not hold true in all scenarios, you should keep this in mind especially if you have a high-interest credit card debt or something similar.

This is a post from Clint Haynes, a Certified Financial Planner® and Financial Advisor in Kansas City, Missouri. He is also the founder and owner of NextGen Wealth.

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2 Responses to 5 Easy Ways to Save Money

  1. GreenDollarBills 10/11/2018 at 11:32 am #

    There’s no doubt in my mind that automating your savings is probably the most important first step in the personal finance journey. Psychologically, it helps you to reduce your current spending as you don’t miss what you don’t have. Plus you’ll find your savings quickly start to accrue.

    • Paul Vachon 10/13/2018 at 4:06 pm #

      I’m a big fan of automating savings! Great way to make sure you are consistently saving!

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