I want to help you save more money without telling you to do things like boycott Starbucks or cutting the cable cord. Of course, you can do things like that if you want. But, if you follow my financial tips below, you can save money while continuing to drink $5 latte’s and keeping your cable subscription (if you so choose).
Tip #1: Track your Spending, and Make a Budget.
There is no getting around this. You need to track your spending, and you need to make a monthly budget. As financial guru and author Dave Ramsey says in his Total Money Makeover book, “Tell every dollar where to go instead of wondering where every dollar went.”
Tracking your spending and making a budget isn’t hard. It’s not rocket science. It’s really very simple. Yes, it’s boring. But if you don’t do this first step, you’ll probably never save a single penny, and you’ll live perpetually paycheck to paycheck, no matter how much money you make.
However you do this is up to you. Whether it is on paper, on an Excel spreadsheet, using your favorite bank’s website, or using apps on your smartphone… the choice is yours. Just make sure you don’t skip this very important step. While I’ve tracked my expenses and made a budget the old fashioned way (paper and Excel), I highly recommend big banks like Wells Fargo, J.P. Morgan, and Bank of America. Their website software is excellent and free for all account holders, and tends to be better than smaller credit unions, with data always being live and up to date.
Tip #2: Pay Yourself First.
One of the greatest personal finance books of all time, and is more than a century old, is called “The Richest Man in Babylon” by George Clason. In this fictional book about a man living in ancient Babylon, timeless financial advice is dispensed. The most important point in the book is that you must learn to “pay yourself first.”
The idea behind this is really simple. If you do not learn to pay yourself first, you will always be paying someone else. That is why the first check you write (apart from money you give in tithes/offerings for religious purposes), should always be to yourself instead of your debtors.
This means you need to systematically save your money, every month, without fail. Whatever you do and no matter how tight things are… pay yourself first. For failure to do so will always leave you in a situation in which you are constantly having to rob Peter to pay Paul.
And in order to actually practice this idea in reality, you should setup separate savings/checking accounts apart from your primary savings/checking accounts. Every time you get paid, transfer money to these separate savings/checking accounts so that you ensure you pay yourself first and foremost.
My wife and I, after completely blowing our Christmas budget in our first year of marriage, found this a very practical way to save for future Christmases. Afterwards we setup a “Christmas account” in which every month, we transfer money to a separate savings account that we use to pay for Christmas, birthdays, weddings, and other random “gifts.” As a result, we always have money every year for all the major holidays and events, and we control how much we spend. Because once it’s gone…it’s gone. As a result, Christmas and the other holidays are a lot less stressful, and we never have to worry about where the money is going to come from to pay for such things, because we systematically set aside money for the things we want to spend throughout the year.
Tip #3: Continue to Build Your Savings WHILE Paying off Debts.
If you have consumer debt beyond your mortgage, such as credit cards, auto loans, student loans, medical bills, etc, financial gurus like Dave Ramsey recommend that you have a $1,000 emergency fund on hand, and then any savings you have beyond that you should plow into debt reduction.
I admit, such isn’t terrible advice. But, practically speaking, I’ve learned this sorta thing is very difficult to do in a world in which monthly expenses can and do regularly fluctuate.
Instead of doing what Dave Ramsey recommends here, I personally recommend you take half of your excess, and put it towards debt reduction, and then take the other half, and continue to build your savings. First, this allows you to continually “pay yourself first.” Second, it provides the much extra needed financial cushion to protect you from the every day sorta expenses that randomly pop up in life. The $1,000 that Dave Ramsey recommends simply isn’t going to cut it for most folks, and you’ll probably find yourself perpetually stuck on the “baby step” of replenishing you $1,000 emergency fund more often than Dave would ever tell you about.
Yes, this might leave you in debt a little bit longer, and you might pay more in interest, but you’ll also have greater peace of mind as you both build your savings and reduce your debt. And if you get to a point where you have something like $5,000 in the bank, and you feel comfortable doing such, then feel free tossing extra money towards debt repayment. But whatever you do…. always make sure you pay yourself first.
Tip #4: Invest Your Savings and Make Your Money Hard to Access.
Truth be told, depending on your personal financial situation, you’ll probably NEVER need immediate access to more than a couple thousand dollars at any given moment due to surprise life events.
As a result, I personally recommend that any savings you have beyond a couple grand (decide what is best for you), that you completely invest all that money. I recommend those savings be invested in something conservative, like a high yield bond mutual fund, or some Index Fund/ETF. However, there is no need to let cash sit idle on the sidelines as it gets eaten to death by inflation, while your bank pays you less than 1% on your savings.
Invest your savings in something safe and conservative, and something that has a little more yield than your savings account. That way you’ll put your money to work so that it’s working for you instead of sitting idle, and your savings will continue to grow by the magic of compound interest. This way you further protect your money from you, as investing it makes the money harder to access and harder to spend. And, if for some reason you have an expense that’s larger than your checking account, you can always simply use a credit card to hold you over until you liquidate your investments to pay for those expenses (as they take several days to clear).
Of course, consult your CPA, financial advisor, lawyer, or other professional before making any investments. For a great book on personal investing, I recommend A Random Walk Down Wall Street by Burton Malkiel. I also recommend A Bogleheads’ Guide to Investing by Taylor Larimore (et al). And don’t forget to check out The Millionaire Next Door by Thomas Stanley.
Tip #5: Make Yourself Uncomfortable.
Save so much that it hurts, if you can. If you are properly saving, you should feel a little bit of a pinch and a level of discomfort from the aggressiveness of your savings. Live modestly and frugally. Live below your means, not within them… and yes, there is a difference.
If you simply live within your means, you are virtually guaranteed to blow your monthly budget. Living below your means adds some additional padding and margin to your lifestyle, allowing for sudden unplanned expenses.
To live below your means, do practical things like own a gently used 2-3 year old car (NEVER BUY A NEW CAR EVER, UNLESS YOU ARE FILTHY RICH) . Drive your car for at least 250,000 miles, and make sure you buy something reliable like a Honda Accord.
And don’t always buy the latest and greatest in technology or fashion. Always be one or two cycles behind on gadgets like iPhone’s and laptops. Never stand in line to be the first to buy anything. Wear nice clothes, but buy them somewhere reasonable. Avoid luxury goods like Air Jordans. You’ll be better off financially wearing shoes like New Balance or Clarks. Buy something of good quality, but that doesn’t have a huge big name label.
For some great tips, I personally recommend the blog of “Mr. Money Mustache,” who practices extreme frugality. I don’t endorse everything he says or the way he says it, but, I have a lot of respect for the frugal lifestyle he lives and has extensively documented for others to see.
Tip #6: Save with a Purpose.
Know what you are saving for. Don’t save merely to save, or be frugal to frugal. That’ll kill you emotionally and spiritually, and people will hate you for it. Heck, you will hate you for it.
Instead, examine your life and determine what financial goals you want to achieve. Save towards buying a nice used car in cash, towards remodeling your home, towards going on a missions trip, towards starting a business… whatever you want. Just make sure you save for something you have a real purpose for.
Tip #7: Prioritize Giving.
Last, but not least, be sure to give, and to give generously. Live to give. God has blessed you with so much, not so you can selfishly spend on yourself, but so that you can be a financial blessing to others. Give to your church, give to charity, give to the poor, and put money back to work in your community to make it a better place. Don’t blow all your money on you, because it’s not really your money anyway, that money belongs to the Lord. We are merely the stewards of what He has given us to manage. So manage it well.