People assume that to become financially free they must learn how to increase their income and make more money. They tell themselves…if I could make an extra $1,000 or $3,000 a month, I would be able to retire comfortably. While that may help, it’s not necessarily the entire solution.
You may be asking yourself what’s wrong with that logic though? Having more money = more money than you have now = I will have money to save. The problem is that people who haven’t learned to save tend to ‘live within their means’. This means that if you have $4,000 of disposable income each month, you tend to live off $4,000 a month. If you have $10,000, you’ll live off $10,000.
The simple fact is that If you haven’t learned how to save, your cost of living will adjust to whatever is available to you each month….regardless of your income level.
That’s why learning sound personal finance techniques and learning how to save money should always be a higher priority than learning how to make more money. Once you’ve learned how to efficiently manage your money, then you can focus on how to make more of it.
The Solution to Saving More Money
So what’s the solution? How do you learn to naturally start saving more of your income? Well, it’s actually a lot easier than you would think. There are several simple things you can start doing today to spend less money each month.
Some of them don’t take longer than 10 minutes while other require a little bit of conscious effort each day. Overall though, these five tips stem from basic psychological principles that essentially help deceive yourself into spending less.
Before we dive in…I know not everyone learns best by reading, so for all you auditory learners out there, here’s a link to the video I made. You can also check out my YouTube channel for videos on a lot of the other topics I write about here on my blog.
Savings Tip 1: Set Up an Auto Withdrawal
Like I said earlier in this article, people tend to live within their means. If you have a lot of money sitting in your checking account, you tend to be more free with your spending. On the same note, it’s not easy to justify buying that coffee at Starbucks when you have less than $100 in your checking account.
That’s why one easy way to save more money each month is by artificially lowering your means by setting up an auto withdrawal system to transfer money into a savings account each week. This way, you’ll have less disposable income and your day to day spending habits will soon reflect that.
Many banks and brokerage firms offer an automatic investing program that you can set up within a matter of minutes. Another great tool to check out is Digit (affiliate link).
Savings Tip 2: Increase Your 401k Contribution
If you’re employed, you most likely have a 401k through your employer. One simple way to save more money is by simply increasing your 401k contribution each month. As a result, your disposable income each month will decrease and you will unconsciously change your spending habits to reflect this.
This tip is especially true if you’re not maxing out your employers matching or the annual limit of $17,500. As a tax sheltered account, you don’t have to pay Uncle Sam any taxes on the money you put into your 401k. This is pretty much the closest you’ll ever get to free money.
Savings Tip 3: Use Cash
Do you use a credit or debit card for the majority of your transactions? Well, you might want to reconsider.
Swiping a card is easy. An electronic transaction occurs and you don’t have to think twice about the money you just spent. However, physically handing over dollar bills makes you truly analyze whether this purchase is worth it and whether or not you could spend this money in a better way.
In fact, it’s a proven psychological principle that physically handing something over creates a greater sense of loss. Utilize that principle for your own benefit and start using cash as often as you can.
Savings Tip 4: The Envelope Method
The envelope method is a popular system for saving money that utilize the psychological principles behind using cash.
In essence, you get several envelopes each month and label them according to different categories in your budget (ex: groceries, entertainment, clothes, etc). Then, you put the amount of cash you want to spend on that category for the month inside each of them. Then, when you go to make a purchase, you bring the appropriate envelope to the store and only use the money that was originally allocated for that category.
This is a great system because it helps you visualize how much of your budget you are spending, creates a sense of loss by physically handing cash over and helps you stick to the budget you set at the beginning of the month.
If you want to learn more about the envelope system, I highly recommend checking out this article by Dave Ramsey.
Savings Tip 5: Focus on Getting Healthy
Getting into shape can work wonders not only for your health but also for your budgets. In fact, this is the one tip that probably helped me out the most.
At one point in my life, I didn’t care much about my health and I eat out fairly consistently. It may not seem like a lot when you’re standing in line, but those $7 Chipotle burritos can quickly rack up a hefty bill at the end of the month.
But that all changed when I decided to start going to the gym and getting into shape. In order to make my time at the gym efficient, I started making my own meals at home to stay healthy. This not only helped me lose over 30lbs, but it also helped me reduce my food budget by over 70%.
I know it’s tough to get into the gym, but thinking healthy and trying to stay away from eating out can do wonders for your budget. And if you have multiple mouths to feed, do what we did and make a weekend Costco run a family outing. Depending on the items you’re purchasing, buying in bulk can reduce your costs further.
Well, that’s it! Those are five easy ways that helped me save more money when I first started. Most of these methods only take minutes to set up and help utilize psychological principles to help you spend less and save more. It may not be easy at the beginning, but, over time, saving will become second nature and you won’t even be able to imagine how you use to spend so much!
Have any tips of your own? What are simple ways you save money?