What would you do with extra money? Would you invest in a sweet pair of Warby Parker sunglasses? Buy up more stock in your favorite company? Take the classes you’ve always wanted to enroll in? Whatever your choice, you can make it a reality. Keep these money saving tips in mind while you make up your mind.
1. Be real
Do you beat yourself up for being “irresponsible” with your money? Do you turn a blind eye to your spending habits because it’s anxiety-provoking? Does the idea of personal finance generally make your tummy churn?
You’re not alone. Actually, shame about money is such a common issue that a whole industry of self-help books, websites, and even a Financial Therapy Association has been created to help folks like you and address the discomfort related to dealing with personal finance.
The first step to taking advantage of money saving tips is shedding money shame and getting honest with yourself about your finances. Afterall, if you’re not even sure where your money goes, how can you start spending less of it?
Avoiding, ignoring, or denying the reality of your financial situation may put a temporary bandage on the problem, but it can also cause you to lose money. In order to put into practice other money saving tips, first be real with how you feel about money and honestly layout your expenses, savings, debts, income, and other financial obligations.
Some people find financial therapy and other tools to be helpful.
2. Budget reasonably
Once you’ve gotten honest about where your money goes, make a budget. Defining a budget that you can realistically stick to is one of the most important money saving tips.
One practical method is the 50/30/20 budget rule. According to the 50/30/20 strategy, about half of your budget should be reserved for life’s essentials (food, shelter, and healthcare), around 30% to flexible spending (going out, hobbies and non-essential treats), and 20% to your personal financial goals (investing, saving, and paying off debts).
Determine how much of your paycheck will be dedicated to essentials, your fun fund, and financial goals ahead of time. Planning can help you save money by cutting down on unnecessary spending, which is a major source of debt.
Creating a budget that you can stick to is hard, but it is an essential money saving tip. When (not if) you fail, don’t give up. Try to track your expenditures in such a way that you understand why you failed, so that you can be more successful in the future. Did you overspend on food? Transportation? Going out?
Perhaps your initial budget was too restrictive. How much did you go over by? Perhaps perfectionism is making sticking to your budget too difficult. Whatever your budget failure was, don’t throw in the towel. Controlling your spending is key to setting yourself up for financial success, so work on improving this practice over time.
3. Pay yourself first
Pay yourself first (PYF) refers to putting a portion of your monthly income towards your financial goals like saving, paying off debt, and investing before paying anything else, including rent and other essential bills.
It has been said that the PYF principal can “help you develop tremendous wealth.” This is because PYF transforms your savings and investment goals from an option into your greatest financial priority. Try setting up an automatic monthly transfer of up to 10-20% of your income and funneling it into your savings account, or investment fund.
Although the idea of doing anything with your money before paying your essential bills is a bit nerve-wracking, don’t worry. It’s actually a great money saving tip. Many folks worry that this strategy would not work for them, as they fear they would not have enough money in the event of an emergency.
However, PYF doesn’t require you to increase how much you’re saving or investing. Rather, it requires you to prioritize your money differently. When we treat saving and investing like end-of-the-month luxuries, they may take a backseat to impulses and other things that appear to be priorities.
However, when investing in your financial goals is the very first activity that you automatically do with your paycheck, you eliminate the thinkwork. Giving your money a purpose through savings and investments is essential to improving your financial well-being.
4. Forget about extra income
Did you make extra money this month? Have you picked up a side hustle? Are you unsure of what to do with that tax refund? Our money saving tip: forget about it.
While treating yourself is an important strategy to staying on track with your financial goals, a bonus at work, refund, or other unexpected cash can help move you towards your personal finance goals faster. If you come into extra money, rather than splurging on yourself, consider putting that cash towards paying off future debt payments, creating an emergency fund, or investing.
5. Save on essentials
There’s no way around spending on essentials. As such, another money saving tip is to consider ways to trim down on the money you spend on food, housing, and insurance.
Food-related spending eats up a significant slice of our income. Millenials spend more on food than previous generations; it’s estimated that we shell out about 44% of our food budget on eating out and the average millennial spends around $800 a month on groceries. How can you trim those numbers back?
Try changing your diet. Swap out meat for vegetarian options a few times a week. Eating less meat is beneficial to your health and can help you save money on groceries. Also consider limiting your intake of exotic, luxury, and processed foods. While these options may be delicious and trendy, they can significantly inflate your budget.
Finally, meal plan and eat at home as much as possible. Eating out can cost at least five times as much as cooking for yourself.
Cohabitating can be difficult. However, inflation in rent cost and home purchase have left wage increases in the dust. Consider that from 1960-2014, inflation-adjusted rent jumped by 64% while household income rose by just 18% in the US. To make financial independence a possibility, consider living in cheaper neighborhoods and buildings and sharing with roommates.
Insurance is essential. It is also a money sucker. While we can’t do without car or health insurance, one simple way to cut back on spending is to shop around. Many folks select a policy out of convenience, perhaps because it’s a policy a friend or family member uses, they quickly found it on an internet search, or they saw an ad for it.
However, intentionally comparing plans on a regular basis is a good way to find deals about which you were not previously aware. This could end up saving you thousands of dollars each year.
The bottom line
Few people would turn down extra money. While it may be unlikely that you have a steep inheritance or a wealthy fairy godmother in your near future, there are many money saving tips that you can use to find extra cash that has been hiding right under your nose.
For more money management and investment tips like this, check out the rest of the Academy library.