"Do not save what is left after spending, but spend what is left after saving" Warren Buffet
Beginning to save is never easy but it's very necessary. Once you start it begins to snowball (in a good way) and it motivates you to save more.
In order to save you should be aware of what you spend and then make a budget... Snore! This may be a huge eyeopener, believe me! There are so many great apps out there that allow you to input your daily expenses. I love Tosh Finance or Mint Personal Finance. They allow you to add your own tags for expenditure and send you daily reminders to input your expenses. After a week or two you can look back and see how much you have spent on certain items, such as coffee, lunch or shoes. $70 on coffee anyone? $200 eating out? On top of buying groceries... Oh please!
Firstly, you need at least two bank accounts. One for everyday spending, like the necessities...groceries and entertainment. Then have a second account strictly for saving. It can be a deposit account but you will more than likely earn interest on it if it is a specific savings account. This is pretty much untouchable. Transfer an amount you can afford every month when you get paid from your 'everyday account' to your 'savings account'. Set it up as a standing order, that way it's gone from your bank account and into your savings account before you even realize it. What is left in your 'everyday account' is your budget for the month. A great idea here is to set up a notice savings account, where you have to give a weeks notice or more to have access to your funds. You'd be surprised, by the time that week passes more often than not you've decided you don't need to touch the money. If that's the case remember to transfer the money back into your savings account and not just spend it because you have extra cash. You'll thank me in the long run!
The first month or two you'll probably find it difficult but by month three you'll be on a role and seeing your savings account increase is really motivating in itself. This method of saving can be for everyone. Whether you have a steady salary, a part time job or a weekly allowance. Divide your money up, know what are necessities and what is 'fun money'.
To begin, take a good hard look at your spending patterns and any recurring payments. Okay, your car insurance is a necessity, but is the Netflix subscription as well as the HBO subscription and your internet bill a necessity too? You could probably find most of what you watch on those subscriptions online... Of course, keep the internet, we're not going completely cold turkey here! If you can't give up your subscription can you reduce it to a cheaper subscription plan?
If, like me, you buy a lovely hot coffee with all the trimmings on the way to work every morning as well as buying coffee in your weekly grocery shop what's the point in buying both? That's a grand total of approximately $35 a week, leaving aside the muffin you add in or the salad box at lunch time. Toshl it all for a week or two and prepare to be shocked when you realise every trip to your boutique coffee shop has cost you a minimum of $5. That's nearly $1,300 a year! Even half of that would pay for an amazing holiday. Invest in a nice thermos coffee cup and take it from home each morning. That way you get to have your coffee on the go and probably have a lot less sugar too. Win-win!
Don't fool yourself by saying "I'm okay cause I don't drink coffee!"..... The same rules apply to whatever small purchases you make on a daily or weekly basis. Do you need it or just want it? Maybe you could cut your expenses by treating yourself to an expensive coffee on Fridays and bring a coffee from home the other days. That's a saving of over $1,000 a year alone!
How many nights a week do you eat out or get take away when there is a fridge full of groceries at home? Yes it's easier, yes it's wonderful to be waited on and not have to clean up after cooking but it's also costing you a pretty penny! Why not continue to enjoy the social aspect and have people around, a potluck sort of night rather than going out for dinner? Everyone can bring a dish or drinks and you're all saving. A group of my friends did this and it was so much fun! Every week we would go to someones house and everyone would bring a dish and a bottle of something. It was always such a great evening! We all mucked in to do the dishes and chatted for hours. Many hands make light work and all that!
Do you go out and buy lunch everyday? It's just a $5 here, a $10 salad there. Yeah, that's over $50 at the end of the week easy! Many of us go out and buy all the ingredients for lunches, the salad leaves, meat, eggs, the works, then we proceed to lay in bed 20 minutes longer and before you know it you're racing out the door with a breakfast bar! Unnecessary spending on coffee, snacks and lunch for the day. Teach yourself to become a little more prepared. I don't love making lunches every morning, I don't think anyone does. So why not prep everything on a Sunday night or just before you go to bed each night? Salads will hold well for a few days in a sealed container, then Wednesday evening I will prepare two more for Thursday and Friday. It's really not that difficult, and saves you big time! No more wasting bags of salad and veggies because you couldn't be bothered preparing lunch. The same goes for making dinners and freezing them for those days when you are feeling tired and don't want to cook something from scratch. There are so many recipes online for tasty dinner ideas that freeze well there really is no excuse. It's not fun but it's worth it when you are sunning yourself in the Caribbean in July!
Parking is another big saver. I know, I know, it's nice to just stroll to the car after work, hop in and drive home. But are you paying $20 a day to park 'downtown' when it could be as little as $3 to drive to the park and ride and park for free then take a shuttle or bus to work. That's unnecessary spending. Car pool with colleagues or classmates, that way you're both saving on parking and petrol costs. If you don't need your car during the day then why not check out bus routes to get you to work or school? Again, it's not forever it's just a small sacrifice for now and you'll be glad of it when you have thousands saved by this time next year!
Set a savings goal. It's a lot easier to save when you have something in mind that you want to save for. Whether it's a deposit for a house, a new handbag or a holiday in the sun it's a lot easier to stick to your goal when you have something specific in mind. Set more than one goal if you can. Especially if there's a time limit on a goal (like saving for a holiday in May) it's important to have something else in the pipeline so that you don't lose momentum and give up once you've reached your target.
Know the difference between long-term savings goals and short-term goals. Saving for a mortgage is going to be long term when you're young and then it will probably change to saving for your children's future or home improvements or retirement. These should be in an account where you really have no access to it without giving the bank more than a few days notice that you want to withdraw. Short term goals are more like the handbag you've had your eye on for a few weeks or upgrading your car or wardrobe. Don't take money from your savings unless you are really sure there is no alternative and it is not just for an impulse buy.
Starting to save is never easy. You feel like you're giving away your money to this secret place and you can't touch it so it doesn't really count. After a few months you'll see how much it counts and you will wonder why you didn't start sooner.
So to get you started here's a recap on what you need to do:
- Track all your expenses for a week or two. Obviously the longer you track your expenses the more of an insight you have into your spending habits.
- Cancel all the unnecessary subscriptions. That applies to the three movie subscriptions and the magazine subscriptions you don't even read.
- Set up a second bank account and check which one will earn you the most interest on your savings. It's pretty simple to set up a second account online these days. If you're unable to do this, call into your bank with two forms of I.D. Try negotiating to get the best deal on your savings account. Remember the banking staff usually make commission on opening new accounts so do you're homework and ask them to explain the differences if you are unsure.
- Set up a standing order or direct debit from your 'everyday account' to your savings account so that the payments are automatic a day after you get paid.
- Be prepared. Make your lunch and snacks the night before. Have your coffee brewing in the morning as you run around getting ready and bring it with you in a take away cup.
- Look at any other costs that you can reduce by changing your habits slightly. Not paying for parking, walking places instead of driving, having your hair done every 2-3 months instead of every six weeks etc.
- Set a savings goal, or two or three. Always remember why you are saving and how grateful you'll be when you have funds to fall back on in case of an emergency.
Starting to save is about making a conscious effort for your future. We all want things we can't afford now and then but if you have saved you can give yourself these little treats or have funds for a rainy day. The earlier you start the better. You can thank me later!