Create Your Plan
Saving money is difficult because it requires adjusting some lifelong habits, but it is definitely possible. Like any other goal in life, trying to save money requires determination and a plan. Whether you are saving money for a major purchase or for early retirement, having a plan in place will allow you to stay focused and take the necessary steps to achieve your financial goal.
Making a plan, means sitting down with a pen and a piece of paper and jotting down how much you intend to save and when your deadline will be. For example, your goal might be to save $15,000 for your down payment by the end of the year to buy a house. Once that is established, you will need to a bank account to deposit your savings and a system for tracking your income and expenses to determine whether your goal is realistic and how it can be achieved.
Savings and Checking Account
If you don’t have a savings and checking account yet, you would immediately go to the bank. This is the key in controlling where your money goes. Many people cash out their paycheck at cash checking stores, which is probably the worst thing you can do if you are trying to save. The store will charge you a fee to cash, unlike the bank, which does it for free. Also, cashing your check means that you will be depositing everything into your pocket—a sure way to spending it all.
There are a few factors to consider when choosing a bank for your savings and checking account. Find a bank that is in your local community. This will spare you of the ATM fees when you need to withdraw cash immediately. Another thing to consider is the minimum balance required. If you have minimum savings, you will need to choose an account with a low initial deposit and low required balance each month. Otherwise, you will be paying fees for overwithdrawing from your account. Also, consider the interest rates, which vary slightly from bank to bank. A higher interest rate means that you would earn more money each month. Also consider putting your cash into a CD if you won’t need your money within a year. CDs often earn a higher interest rate than a regular savings account.
Finally, sign up for direct deposit if possible at your work place. Not having direct access to your paycheck will prevent you from spending frivolously and require you to constantly monitor your balance. If you need cash, simply withdraw from the bank or your bank’s ATM machine. Your bank will also provide you with a debit card, which allows you access to funds in your checking account to pay for purchases. However, make sure you withdraw enough each time from your bank’s ATM only. This will prevent you from constantly running out of cash and withdrawing from other ATMs that charge you a convenience fee.
Tracking Your Cash Flow
The best way to keep track of your expenses is jot down all your cash flows for the month. For the computer literate, an electronic spreadsheet is the best way to record data. First determine all your sources of income. If you are employed full-time, you will probably have a fixed monthly income. Those who are working on a temporary or contract basis will see more fluctuations in positive cash flows. Also include extraneous sources of income, including gifts you have received or a sale made on e-Bay.
Then record your negative cash flows. This will be the most tedious part of the process. Create categories for different types of expenses: rent/mortgage, gas, electric, heating, clothing, food, entertainment, etc. If you pay most of your bills online using a credit card or bank account, then all you need to do is to look back at your statements. The same goes with making purchases with a credit or debit card. If you tend to use cash a lot, you will need to start saving the receipts. At the end of the month, you can simply take all your receipts and enter them into your monthly budget. Be as accurate as possible, putting down every cup of coffee that you have purchased. After all, that $3 latte on your way to work, can turn into $15 a week, or $780 a year.
Once you have finished recording all your positive and negative cash flows, it is time to scrutinize your budget. Rent or mortgage is probably your biggest expense, and often times non-negotiable. However, if you find that it is taking up more than 40 percent of your budget, consider having a roommate to help out with the cost. The rest of the budget can be controlled to a greater extent and that is what we will focus on.
Unless you are very creative in finding new ways to bring in more income, the only other way to save money is to reduce spending. Like a diet, reducing spending is difficult and is often prone to failure. People often start with extreme ways of scrimping and deprive themselves of spending, only to find themselves a shopping binge later. What you need to do is the opposite. You need to start slowly, reducing your expenses one at a time so that you can gradually get accustomed to a new lifestyle. After all, reducing spending is about changing the way you live your life on a daily basis.
How do you do this? We’ve already established that your $3 latte-a-day habit can set you back $780 in a year. Instead of quitting cold turkey, you could go slowly. For the first week, make it three lattes a week and subbing the other days with regular coffee. After a while, you will get used to the regular coffee and can replace your lattes completely. Further down the line, trying making your coffee once a week instead of buying it. Slowly replace homemade coffee with store-bought coffee. Again, once you get into the habit of making your coffee every morning, it will become easier that you won’t even think twice about how inconvenient it is. You might even prefer it to standing on line at the coffee shop.
This method pretty much works for most kinds of spending. What you don’t want to do is make a drastic change too quickly. What ends up happening is that the extreme change leaves you feeling too deprived early on. You end up giving up because it is “too hard” and return to your own ways because you feel that you “need” it, whether it is coffee, a new pair of shoes, or a beer at the bar.
Buy What You Need
We all buy things knowing very well that we really don’t need them. It is difficult to control ourselves when we see the newest cell phone model or shoes on display at the mall. The best way to stop temptation is to make less shopping trips.
Shopping has become one of America’s favorite pastime. We go to the mall when we are bored or when we want to meet up with friends. However, every time we pay a visit to the shopping center, we feel compelled to make a purchase, especially with discounts and markdowns. Even when we buy something that is 50 percent off, we are not saving money if we don’t need the item in the first place. What we need to do is find other activities to occupy our time, whether it be watching a movie at home or going for a run. If you tend to socialize at the mall, find a new place such as a coffee shop or the local park. If your friend loves to shop, let her know about your plan to save money so that she will understand. The last thing you want to do is go shopping with a shopaholic, who will simply encourage you to make purchases.
However, going on shopping sprees isn’t the only way we spend money. We make purchases everywhere we go—at the supermarket, the discount store, and even the gas station. Again, what we want to do is buy what we need, not deprive ourselves. If we are thirsty, we might want to purchase a bottle of soda. But before we make the purchase, we should ask ourselves how much soda will we realistically drink? Are we really going to finish the 24 oz or do we just really need a can? Many people become caught up with the idea that more is cheaper and better, and simply disregard what they need. What ends up happening is a lot of wasting. This is especially true with sale items. We might end up buying three cartons of juice if it goes on sale, yet halfway through the second carton, we either get sick of it or it becomes expired. Therefore, we should only stock up items that we know we will definitely use within a reasonable time frame.
Eliminate What You Don’t Need
Cutting out things you don’t need is more difficult than not buying things. This has to do with habits that have grown over the years. This step will probably make you feel the most deprived but it can be accomplished. What you need to do is find ways to substitute what you have eliminated.
A good example to use here is cable TV. Cable bills can run upward of a hundred dollars a month, depending on the service plan. We might claim that we need it for relaxation after work, but we can’t claim we need it for survival. Again, what you want to do is eliminate things gradually. Look into your plan and see if you really need all those channels. Then downgrade your cable service to what you absolutely need to watch. Meanwhile, look for other ways to substitute what you have eliminated. After getting rid of the movie channels, consider joining a DVD monthly rental service like Netflix for movies. Better yet, take advantage of your local library and borrow your DVDs for free. Just make sure that the substitution is worthwhile before you make the change. If a lack of cable TV sends you to the mall, than the substitution might cost you more in the end.
Know How To Save
There are many tips and strategies that will help you save money in all expense categories. Many people simply are not aware of them. Some of the tips don’t even require any deprivation, simply a change of habit. Here are some of them:
Saving Money on Food
Food is probably the next biggest category of our expenses. If you have a large family to feed, your grocery bill will be quite large. There are ways to cut down on your grocery bill without a great deal of effort. First thing you need to do is go shopping after a full meal. People tend to make more impulse food purchases on an empty stomach. Avoid bringing other family members to the market all the time, especially children. They will spur you to make unintended purchases. Always go with a shopping list. Even though most of us probably won’t stick to the list religiously, we will stay more focused in purchasing what we need if we bring a list.
Other tips will require a bit more effort and change in our habits. We should get into the habit of looking at the price per unit, which is posted next to the actual price when we compare products. The actual price is not always reflective of value since you the product will vary in size. Generic brands tend to be cheaper than name brand goods. They are often just as good as the name brands. However, there might be brands for certain items that you feel are irreplaceable. Rather than deprive yourself, look for coupons in the paper for these products. Beware of clipping coupons for items that you don’t want or need; this will defeat the purpose of using coupons to help you save money. For raw ingredients, it is generally easier to make the substitute since there will be very little taste difference in the end product. You probably won’t be able to distinguish Arm and Hammer baking soda from generic baking soda used in a cake.
Finally, determine what items to buy in bulk to save money. Dry ingredients, such as salt, sugar, pasta and grains can be stored for a long time. If you do quite a bit of cooking, it is probably worthwhile to stock up on basic items, especially during a sale. However, dairy and produce have a short shelf life. Only buy what you need so that you don’t end up throwing it away.
Avoid buying lots of frozen or pre-packaged meals. They tend to more expensive and less healthy. Learning to cook meals with raw ingredients is probably the best way to save money on food. If you find it tiring to cook meals every day of the week, try cooking larger batches each time so that you can have leftovers for the next day. Soup, stews and sauces tend to freeze better than others, if you get tired of eating leftovers the next day. Even if you are not so much a cook, you can still avoid the extra expense of prepackaged foods. You can simply peel and cut your own carrot sticks instead of buying the precut ones, or divvy up a box of cereal or cookies into a bunch of Ziploc bags.
Finally, save money by eating out less. We sometimes go out to eat for pleasure, which is sometimes necessary. What we want to avoid is eating out everyday because we have made that into a lunch or dinner habit. Start by bringing your lunch once or twice a week instead of ordering or eating out. Sandwiches and salads often don’t require a lot of skills to prepare and are cheaper than the deli-made version. Do the same for dinner. Eventually you will find that preparing your own meals isn’t so difficult after all.
Saving Money on Utilities
Saving money on utilities is all about changing our habits. There is no deprivation or substitution required for most cases. The number one bad habit we fall into is leaving the lights on everywhere. We really do not need five lights on when we are only present in one of the rooms in the house. Make it a habit to turn off the lights each time you leave the room. Also, get all members of your household to do the same and gently remind them each time they forget. Switch to energy efficient lightbulbs if you have not already done so. Unplug appliances and devices that are not used at the moment; it only takes two seconds to plug them back in when you do need to use them. Although there is a push for energy-efficient appliances, don’t rush to the store and immediately replace everything. You are not really saving money or helping the environment if you throw out a perfectly fine washer for an energy-efficient one.
The same goes for running water. Turn off the faucet when you are brushing your teeth or rinsing the dishes. If you have a lawn, let mother nature take care of the watering instead of turning your sprinklers on 24-7. Run the washer or dishwasher only when you have a full load. Again, it is important to get your family on board.
Most importantly, reducing your heating bill will help you save a great deal of money. If you live in a place where winters are bitterly cold, heating is probably your largest utility expense. Before winter, take care to caulk all cracks and leaks around your window and doorway. You can also purchase plastic wraps from the home improvement store to cover your windows and block out drafts. Installing a programmable thermostat will allow you to preset a lower temperature when you are away at work. If possible, turn down the temperature when you go to sleep as well.
Saving Money on Gas
For many of us, driving to work in not an option. To make things even harder, we are at mercy to the market and the constant fluctuation of oil prices. There are still some ways to save money on gas.
If you like to put the gas to the pedal, then you will need to stop doing that to save money. You will use less gas if you drive at a lower and constant mileage. In the end, it will only save you a few minutes if you drive 10 miles faster. Also, go online and research for the station that sells the cheapest gas. Also, places such as Costco and Sam’s Club offer cheaper gas if you have membership. Some supermarkets will also give you a discount on their gas if you shop at their stores. When you do get gas, make sure you fill up your tank completely. This will avoid expensive emergency gas trips along the highway.
Saving Money on Entertainment
Entertainment has gotten much more expensive over the past few years. A family of four going to the movies can cost more than $50 and a ticket to the aquarium might cost $25. That does not mean that you cannot enjoy yourself for less or even for free. There are plenty of events offered to the public for free, such as town fairs, festivals and concerts in the park. All it requires is a bit of research on your part. You can simply log onto your city or town’s main website and look at the calendar for free events. The library usually posts events and workshops for the public on their bulletin. This is the part of saving money that can be fun as well.
With a positive mindset and hard work, you will be able to save money and reach your goal.