How to Save More Money

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Are you aware that saving is important and want to begin but don’t know exactly where to start? Are you discouraged by the methods you have seen on how to save at home? In this article I am going to show you how to save money with two very effective methods.

First of all, I want to make sure that you fully understand the impact that saving can have in the long term:

If you manage to save just $1 a day, in 20 years you will accumulate more than $12,000 if you have an annual interest of 5%

Hard to believe, but that’s how compounding interest works.

Now that you are aware of its importance, let’s see how you can save money step by step.

HOW TO SAVE MONEY STEP BY STEP: AN INTRODUCTION

Knowing how to save money is the foundation of personal finance and essential to achieving financial freedom.

Many see it as something impossible to control, as if an external force forced them to spend all their income. There isn’t any spending boogeyman, and  you’re going to read about a way to save money that really works.

Before starting with the steps, you must take into account the following:

• As much information as there is here that can teach you, if you don’t do your part, you won’t save 1 cent.
• If you want to save the “typical” 10% of your salary, this way of saving money will work for you, although it is designed to save much more money.
• Consistency is the key to success: saving money every week or day after day is what will make the difference.

With this clear, we are going to see the two methods that I want to show you : a very simple one to apply right now and a more advanced one that needs a little more organization.

Let’s begin!

THE SIMPLE METHOD YOU CAN START RIGHT NOW

This is the simplest method to save called pre-saving or paying yourself first. Simple and effective.

Carrying it out is very easy, it consists of scheduling a transfer at your bank at the beginning of the month (or when you get paid) to set aside the amount you want to save. That money should go to another account or bank where, ideally, you do not have a credit or debit card.

As you can see, there isn’t much of a secret here.

In any case, we are going to see very quickly the steps that you should carry out to save with this method.

Step 1: Think about how much you want to save each month

First of all, you must define exactly how much you want to save each month.

It is best to start with a reasonable amount. Later we will increase it so that you can save even more each month.

The amount to save will depend a lot on your income and personal situation, so there is no better person than you to define it. Here are some examples of what I consider to be good savings figures based on monthly net income.

Just take these as guidelines, and not rules set in stone.

How much to save according to your monthly salary

Step 2: Decide where you will send your savings

The next step will be to see where to send your savings month by month. Ideally it should meet the following conditions:

• Be a bank account in your name without an associated credit or debit card
• No maintenance fees or transfers
• Pay interest without unnecessary risk. This can be the tricky part.

Step 3: Schedule the transfer

With all this you will be able to program a periodic transfer from your bank to the account that you have decided in the previous step. So direct deposit into one account, then automatically spread it to other accounts so that it’s out of sight and out of mind.

It is best if the transfer is scheduled a few days after your payday. For example, if you always get paid at the end of the month, you can schedule the transfer on the 2nd or 3rd of each month.

Here you should also make sure that your bank of origin does not charge you any type of commission for making these transfers.

Step 4: Increase your pre-savings and forget about it

With this, you will have established your savings method. From here you can increase the amount of the transfer until you see that it is enough. When you reach that figure you can forget about the savings system, you will only have to worry about spending the month with the money that you have left in the main account.

And you’ll be saving on autopilot!

By the way, a more advanced way of using this saving technique would be to send that money to an automated investment account.

THE MORE ADVANCED METHOD YOU CAN WORK TOWARD

Now we are going to see a more advanced savings strategy that will allow you to have greater control of your expenses and further increase your savings rate.

Step 1: Control your day-to-day expenses

The first step is to choose a method to control your daily expenses. I’m not asking you to start saving or think about ways to do it, just to identify what you spend your money on .

To save money , you must first know how much and what you spend it on .

I know.

It is very lazy to quantify each one of your expenses, but this is the only way to save a relevant percentage of your money . In addition, today it is easier than ever to have control of personal or family expenses.

Once you get used to it, you won’t want to stop doing it. I assure.

Doing so will allow you to know at all times where your money is going and if you are really achieving the goals you have set for yourself.

How to control your expenses

Next, I am going to explain 3 ways to control your daily expenses  and keep track of household savings. Choose the one you prefer:

#1 Savings Apps : It is the method that I use. There is a lot of variety so you will surely find one that you like, whether it is free or paid.

#2 Spreadsheet:  It is about creating a spreadsheet in Excel or Google Drive in a way that allows you to record all your daily expenses. It is a bit more complex since you have to create it yourself and it is not as close at hand as in an app. The good thing is that you can create it to your liking. And if you do not see yourself capable of creating your own excel budget, there are many free templates on the internet.

#3 Paper and pen : Finally, for the less technologically-inclined there is the possibility of writing down the expenses of your house in the old way. It is not the most highly recommended since it is very laborious and makes it difficult for future analyzes that you want to carry out, but if you do not see yourself using the other ways, this is better than nothing.

 Note : If you’re not interested in writing stuff down constantly, you can always try to pay everything with a card and at the end of the month check your account (keep the receipts for what you pay in cash). It is not always easy to identify and remember each expense of the month, but it is a saving technique that could help you.

Whichever way you choose, you should have control over all your daily expenses.

Don’t get complacent!

Having control over my expenses has been key to optimizing my personal finances.

Note: Today there are banks that already categorize your expenses automatically and even allow you to add other categories. If it goes well for you, you can use it, although you should bear in mind that you will be giving all your financial information to a single entity.

How to organize your expenses

Once you have chosen the way to control household expenses, you will have to define the different categories in which to organize your expenses. This step applies if you can classify your expenses in a personalized way, or in apps that already give you that classification and cannot be modified.

As an example, here’s how I do it (in parentheses, the detail of what it includes):

Home (mortgage, home insurance)

Services (electricity, gas, water, internet)

Food (everything we buy as far as food regardless of where it comes from)

Transport (maintenance, gasoline, insurance, and any other expenses related to our cars)

Leisure ( activities, date nights, recreation)

Shopping (several types of purchases such as clothes, household items, or electronic devices)

Travel (everything related to travel)

Other (donations, gifts, hairdresser, etc.)

In my case, I prefer not to have many games to simplify the process, although you can do it however you think is best. The more detail, the more control, but also the more complexity…

Detail becomes a double-edged sword.

You will not be able to achieve your highest savings rate without knowing which items you spend money on.

Step 2: Prioritize your savings

Once you are clear about how to control your daily expenses, you will be able to prioritize your savings.

Savings can be prioritized in many ways. Methods like this have allowed people to save a large amount of the money every month, sometimes 50% or more.

My way of doing this is by classifying the expense categories that we have defined into the following groups:

• Main expenses: These are the expenses that form the basis of your lifestyle and are difficult to reduce in the short term (similar to fixed expenses, although not exactly the same). In this category there is usually the rent/mortgage, the transport you usually use or the children’s school, among others.
• Secondary expenses: These are expenses that, although they may be important, you have more room to reduce or eliminate. In turn, you must further divide them into:

1. Recurring secondary expenses: Secondary expenses that are repeated over time: supermarket purchases, electricity bills, other household services, restaurants (if you go often), subscriptions… These are usually monthly or annual expenses.
2. Non-recurring secondary expenses: Secondary expenses that occur from time to time or very infrequently: specific purchases, gifts, trips, activities.

The classification of expenses is something very personal, so these examples may not apply to you. Pick classifications that make sense to you and are easy to remember.

Once you have classified them (either on paper, in an excel or in a mental note) we can move on to see the savings strategy to be followed by each group.

Note: You may have a tendency to classify many expenses as “main” but try to leave only the essentials there. Remember that there is not a classification between fixed and variable expenses.

 No Mercy: Recurring Secondary Expenses

Your number one priority will be to reduce recurring secondary expenses.

First of all, you need to find if there are any that you can stop directly. They will be those expenses in which the value contributed is practically nil.

Some examples of expenses to eliminate:

• Subscription to the gym that you do not use (although for me it is better that you go to save money).
• Streaming video/music services that you do not use or could centralize in one (Spotify, Netflix, HBO, etc.).
• Mobile phone insurance or others that are not necessary (although they sell them to you very well).
• Monthly subscription apps that you hardly use.
• Cleaning or ironing services that you could do yourself (I consider it interesting if your income/hour is much higher than what you pay for this service).
• Coffee or breakfast purchase every morning.
• Tobacco/vaping/drugs (if you don’t do it for your health, do it for your wallet).

Reflect well on each one of your expenses and ruthlessly eliminate what does not contribute enough value to you. It’s not an easy process, but think there’s always time to re-think what you are spending money on.

Nor is it about eliminating everything, simply trimming the “fat” that is left over to keep what really adds value to you.

The next step is to try to reduce or optimize the ones you can’t eliminate. If you did not have the saving mindset activated previously, it is normal that in your life there are many inefficiencies in daily or monthly expenses that you can now correct.

Some examples of optimization to save:

• Reduce gas, electricity and water consumption, in addition to canceling the additional “services” that are included in the contracts. 
• Switch to a lower internet speed if you don’t need your current speed.
• Buy more store brands and less processed foods (cooking is the best way to save money and eat healthier).
• Go out to eat less if you go very often or, as an intermediate solution, order food from home (delivery is still usually cheaper than a full sit-down meal somewhere).
• Use public transport or bike instead of car (this could mean significant savings, although it is not always possible).
• Buy clothes only if you need them and, if possible, on sale.

 Heavy Handed: Specific secondary expenses

Once you have attacked the recurring secondary expenses, you can move on to the specific ones. Due to their sporadic nature, the impact they have on your economy is usually minor.

However,  you should not underestimate them. Treat them with a heavy hand.

On many occasions  you cannot anticipate this type of expense  and the decision is made at the moment, so you must be prepared for when the occasion arises.

To help you reflect, you can follow some of these tips that will allow you to avoid or reduce your expenses in the future:

• Ask yourself: Is it really necessary to buy or spend on _______? Could I make it myself or buy it online for less?
• Allow a few days to pass before making any purchase to reflect on whether it’s worth it (it’s a very silly trick but I assure you it works wonderfully).
• Score from 0 to 10 how happy what you want to do or buy will make you.
• Score from 0 to 10 the degree of usefulness of what you want to do or buy.
• Think if this expense you make is for pure commitment and value.
• Analyze if it is something that implies more expenses in the future and take it into account when making the decision (for example, if you buy an iPad, you may then “have” to renew it every few years as new models come out).

 Slowly but Decisively: Main expenses

Finally, you are left with the main expenses.

The main expenses are more difficult to reduce  (but not impossible) without dismantling your lifestyle, and they usually represent a very significant part of your household expenses, so they cannot be left aside.

I am not going to ask you to start reducing these expenses right now, but you should keep in mind the expense that these items entail and try to think if there are alternatives.

To do this, these questions will help you reflect on the main issues:

• Does a new car paid in installments make you happier than a second-hand one? Are you aware of how much they depreciate once they leave the dealership?
• Do you really need to buy a home? The flexibility of a rental can perhaps save you money in the long run. Otherwise, renting can just be money wasted with no equity gained. Every situation is unique.
• Could you live in a smaller apartment or in a cheaper area while maintaining quality of life?
• Is it necessary to take the car to go to work or to do the shopping?
• If your job requires you to live in a more expensive place, have you considered changing jobs or asking to work from home and go to a cheaper place?
• Do you need someone to clean your house?

I know some of these questions are a bit hardcore…

I don’t know about turning your life upside down or stopping paying for everything. My intention is that you rethink all important decisions from a financial point of view, in case you have not done so before. Do not stop doing anything that you consider important. Money, after all, can bring us happiness in its own way.

In addition, there is something important that you should keep in mind about this type of expense, although it also applies to the previous ones:

Sometimes a good “saving” strategy is not to increase your expenses as your wages also increase. It is to avoid the so-called lifestyle inflation.

On average, the salary increases as we have more experience. When this happens, what people usually do is elevate their lifestyle at the same rate.

The result?

These people spend more and more money without being happier, which makes them more dependent on their work to keep their lives “inflated”.

If, on the other hand, you maintain the expenses of what really makes you happy regardless of whether your salary increases. As your savings become greater, your freedom will also increase.

Keep this in mind as you move forward in your career.

Step 3: Start saving money

Once you have your method to control household expenses and you have prioritized spending… the moment of truth arrives.

Start saving money now.

There is not much to explain about this step:

It is about eliminating or reducing the expenses that you have identified. Here the control you have over your expenses plays a fundamental role, since it will allow you to know if you are advancing in your savings objective.

Step 4: Make a household budget

To do or not to do a household budget?

It is possible that when you have searched for ways to save online you have often found that you have to make a spending budget.

And they are right.

Making a budget is key to saving a lot of money in the long run.

However, it is important to know when is the right time to do it.

In my opinion, you should make a budget when you have been controlling your daily expenses for a while. It is not the first thing you have to do and I will tell you why.

If as soon as you start to control your expenses you already make a budget, it is normal that this is not real life and, many times, it will be underestimated. This makes it impossible to meet, which could discourage you from continuing to save.

It is for this reason that I would recommend that you start to control your expenses and identify and reduce those that you consider. Once you have done this and have a clear idea of ​​how much and what you spend your money on, you can make a household budget.

How to make a household budget

Making a budget is not much of a mystery.

In the app or a spreadsheet that you use, you can include the spending limit that you do not want to exceed for each period. This will be your budget.

I recommend making an annual budget and then dividing it by months.

With the history of real expenses that you have (that is why the budget cannot be the first thing you do), you can calculate the monthly expense of each item in which you have organized your expenses (dividing the expenses by the months that have occurred).

From there, you add those specific expenses that you will have during the year (Christmas gifts, car insurance or trips, for example) to have the annual amount.

Once you have what you would “normally” spend, it is time to take the scissors and see how much and what to cut. It is possible that something is no longer necessary since you have reduced the expenses in step 2. Then, the budget will help you to control everything and make sure it is going as planned.

In case you do cut expenses, I recommend that you do not go crazy immediately, and that you do it gradually.

So there it is, my method to save.

I hope it helps (if you have more suggestions, you can leave me a comment).

About Post Author

Ross

Ross@havekidswillparent.com

http://havekidswillparent.com

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