When it comes to managing money, one of the hardest things for many people to do is to save money. A few years ago, this happened to me when I got myself into a good financial position and saw it ebb away due to not saving money.
If you don’t have a lot of money coming in, it can be hard to justify saving money when you have so little of it. The problem is that this is the exact situation when you should save money to ensure you don’t run out.
My issue with saving money came down to a lack of financial literacy. I was sitting on a lot of money, but I didn’t know how to manage it. I had no savings account, a rookie mistake, next to no idea about the stock market, and no inclination to set money aside for a rainy day.
When I went and lived in Australia and New Zealand for two years, I found my money started to dwindle because of my lack of a saving habit and the fact that I was spending too much.
Had I taken the time to set some money aside for an emergency fund, open up a savings account and rein in my spending, I would be in much better financial shape today.
Saving doesn’t mean you have to be frugal; it just means you’re sensible and plan ahead. It’s easier than you think. Here are four ways you can start saving money today.
Spend less
The first item on the list is the easiest one to implement. Just spend less money. It’s amazing that this advice even has to be trotted out.
If your outgoings are less than your incomings, you’re going to have more money at the end of the month. I should clarify that I’m not advocating you count every penny you spend, just rein in any unnecessary purchases.
Buying a coffee every morning or eating out for lunch? Sure, it’s easier than making your own coffee or food at home, but the expenses add up over time. If you buy a $3 coffee over thirty days, that comes to $90!
It’s easy to lose sight of this when you’re paying for one, but if you look back and add it all up, the cost becomes clear. You would save so much more money if you invested in a coffee maker at home. Buying a $3 coffee across 365 days of the year would cost you $1,095! That’s money that could go towards a new house, holiday or whatever you want. Instead, it’s coming out of your pocket every day, when there is a more cost-effective solution to your coffee fix.
Getting a coffee or eating out once in a while is fine, but when it becomes a habit, it can drain your finances quicker than you think. Have a look through your previous transactions and see what you can cut out or reduce.
You’ll be surprised how much money you can save just by implementing this one easy trick.
Open a savings account
If you don’t already have a savings account, then go and open one! Although interest rates aren’t what they were, not having your money in one is lunacy.
I made this mistake when I was younger, and it meant I missed out on a lot of compound interest! Simply put, when your money is sitting in your bank account, it’s not doing anything.
You don’t gain any interest on the money you’ve got sitting there which is not being put to work. When you stick it some of it in a savings account, you’re gaining interest on that money. The more you put into your savings account, the more interest you’ll earn.
This is one of the most important steps you can take to start saving more money. Once you have money in a savings account, it’s set aside from your bank account and slowly accumulates more money as the interest rolls in.
One thing to consider is that it’s not the best idea to stick all your money into one savings account. Here in the UK, if the bank you save with collapses, the financial regulator covers your loss up to £85,000. So if you had £200,000 in your savings account and your bank went out of business, that’s £115,000 you’d be saying goodbye to.
Check out the regulations in your country and spread your savings across different accounts, the stock market, and commodities. This way, you’re protected against Black Swan events such as a global financial crisis.
Automate your savings
One of the reasons it’s so hard to save money is that our minds conspire against us. I remember thinking about whether I should put money into my savings account, or whether I might need to spend it at a later date.
I had no idea how much I should be saving, and when I did save, it was haphazard. Instead of every month, it was every other month. The main reason for this was that I’d forget to do it.
The best way to combat this is to automate the process. Nowadays, this is easy to do. All you have to do is set up a direct debit from your bank account to your savings account, and you’re good to go. The best part is that this can all be done on a mobile banking app.
This takes away the stress and headaches that money management can induce in many of us. Start by saving what you’re comfortable with, and you can adjust the amount later if you wish.
The best thing about automating your savings is that once it’s done, you no longer have the guilt associated with spending. If you know you should be saving, but instead your spending, the feeling can be overwhelming.
Now the money that you have leftover after your bills and savings are taken care of can be spent guilt-free!
Cancel underutilised subscriptions
In today’s world of Netflix and Amazon, it’s easy to sign up for a subscription service and completely forget about it. This happens to the best of us!
It may not seem like much, but if you’re spending $5 every month on Netflix and you barely watch it, maybe it’s time to consider whether you need it.
This should apply to any subscription, whether it’s Spotify, Youtube, or a subscription to a magazine. Ask yourself, if it’s needed, can you live without it?
If the answer to these questions is yes, then you should probably cancel it. A subscription to Netflix by itself isn’t problematic. After all, it’s nice to relax and watch a show after a hard day.
The problem is if you have multiple subscriptions. This is money that’s being drained from your account on services you may no longer use.
One way of getting around this is to share subscriptions with other people. You can do this with Netflix and Spotify. This is a great option if you’re a couple or share a house with other people.
This way, you split the costs between more people, and you all save money.