Where Do I Begin?
"How Do I Save Money?" is the most common money question I hear. We live in a world where everything we have is at our finger tips; online shopping, concert tickets, trips etc... Maybe you're thinking "I don't have a problem with online shopping but every time I get started saving my car needs work, the fridge went out, I had a medical bill, or another unforeseen expense." This was my problem every time I had some extra cash accumulating my car always needed work or a credit card bill came in always keeping my balance at zero. I just needed to make more money right? I started reading, listening to hundreds of hours of podcasts and audio-books, and networking to learn how to save.
The following are the most important tips I have learned on saving money:
OPEN A SEPARATE ACCOUNT FOR SAVINGS
It sounds cliche, but having a separate bank account just for savings that you DO NOT TOUCH is a CRUCIAL step towards building savings. If you have a problem where you keep dipping into your savings open an account at another bank that you cannot access by card. You don't have to save $500 a month but just get started. Start putting away a certain amount every week/2 weeks/ or month, it can be $50 a month just get started. Once you get started you will be encouraged by the growing savings and start to put more away.
You can automate your savings account to automatically withdraw from your account. This can go towards your investments, 401k, or to your savings account.
START PAYING YOURSELF FIRST! I read this in Rich Dad Poor Dad and it is in many other finance books as well. This one I struggled with the most, I am someone who paid their bills as soon as they come in. Once I started "paying myself first" my savings stopped getting hit because of bills. The idea is that you pay yourself first instead of paying your bills first. Most people pay their bills first then whatever tiny amount is left goes into their savings. Pay yourself first put simply is adding to your savings first. It forces you to get creative.
If your goal is to save $500/mo and you make $1500/mo but have $1500 in bills:
$1500 (Monthly Income) - $500 (Savings) - $1500 (Bills) = -$500 (YOU'RE IN THE HOLE $500)
The bill collector needs to get paid right? This is where the creativity starts you need to ask yourself how you're going to get the $500. You need to start making extra money to pay that $500. Get a side job, create a side hustle, UBER if you have too; that bill collector needs to get paid after all. This will force you to get creative at generating income. Next month you'll find ways to reduce your spending to meet your savings goal.
REDUCING YOUR SPENDING and AVOID THE STORES
I always think it's crazy how whenever I go in a store there are always one or two things I need. Even if I didn't go to the store for those things example: a new jacket for exercising (it's a health investment), something for the house, or a new book (educational investment I can justify). The point is my life was content before I went in the store and now the store is telling me I need this item. These little purchases add up and they're vampires on your savings. Avoid going to the stores all together whatever that may be for you. Stop the weekly clothing store, home decor store, video game store, whatever your "I'm just looking" trip may be. It's going to be hard for the first week or two but after awhile you won't even notice it.
Now the hard part, try dropping your Amazon subscription. I had a prime subscription and the monthly cost for me wasn't the problem. I kept purchasing things monthly even weekly with Amazon and guess what I thought I NEEDED all of those things. It's conveinant and you get many perks with it but this is a HUGE VAMPIRE of your savings. These little purchases combined with your weekly store trips are where you're non existant savings are going.
REDUCE YOUR GROCERY BILL This one is actually really easy and it is something that will benefit your health and your wealth!
First plan your shopping trips, I get my groceries delivered through InstaCart for a 5-8$ charge.
1. This planned shopping trip usually results in getting the same food and avoiding over spending.
2. Planning when I will shop reduces my decision fatigue throughout the week. Before I planned my shopping trips I would run out of food at random points in the week. This led to me buy lunch or eat out and waste money I didn't have to. No longer do I have to worry about when I will go shopping or running out of food. An additional benefit to this has been cooking more. My girlfriend loves to cook and we enjoy trying new recipes together. I'm spending less money eating out and have found a new hobby I never thought I'd enjoy.
If you're a person or family that uses a lot of produce go to a farmers market first. You can usually get a lot more produce for a fraction of the price of normal stores. Costco is also a good place to get produce for a low price; however, it is usually more than I can use and a lot goes to waste. For regular groceries I shop at Aldi which I found has the lowest prices. Most are their generic brands which are just the same as the regular brand names.
Our weekly grocery bill for 2 people?
$20.00 @ the Farmers Market
$50.00 @ Aldi
$70.00 or $35.00 each, not bad right!
When thinking about reducing expenses the go to ideas are getting rid of subscriptions, reduce shopping, maybe cable etc....
Housing accounts for Most of our budget each month and yet no one really addresses how to reduce this expense. This is seen as a fact of life expense that we can't change. THIS IS THE MOST IMPORTANT EXPENSE TO REDUCE in my opinion. So how do you reduce your housing expense? My favorite way is through house hacking, a term coined by Brandon Turner @ Biggerpockets.com however he did not invent this trick. House hacking is simply the idea of buying a house you will live in and rent the additional rooms out to pay the mortgage or even make money. Don't think you could buy a house? People do not understand how achievable this is.
My first house I bought for 237,000 with a 10k sellers assist that went towards the closing costs.
My cash out of pocket on this deal: 13k (I will go into this deal in another post but I used an FHA Loan and put 3.5% down)
I got the house rented out and basically covered all of my mortgage and utilities. Reducing my housing expense: I was previously living in someone's house hack and paying $575.00 a month. Which is cheap for rent but now that rent was saved and used to buy my next deal.
Today many people have student loans, rent, and now a car loan. America needs to get out from under these loans that dry out bank accounts every month. One of the first steps to getting out of the loan life style is by not having a car loan.
Do you need a car?
If you live in a big city the chances are that you can work in that city and take public transit to work everyday. If you can avoid having a car do it, not only will you save yourself from a car loan, but also:
According to Consumer Expenditures in 2017, released in September 2018 by the U.S. Department of Labor's U.S. Bureau of Labor Statistics, the average vehicle costs $9,576 per year to own and operate. The breakdown of the figure comes to $4,054 for purchasing the vehicle, $1,968 in gasoline and motor oil expenses, and $3,554 in other vehicle-related costs. (Investopedia)
If you need a car (most of us do):
If you need a car which most of us do you can still find other ways to cut expenses. Don't buy a new car if you can avoid it. Today most people get out of college fresh with loans and the first thing they do is buy a new car. It is staple of adulthood: graduate from college, buy a new car, put on Instagram and get congratulated for a week, then pay the loans for 5 years (WITH INTEREST).
had this debate with myself, should I get a brand new Ford? It's only 20k and the payments would be around 300/mo (289 on 5% interest) that's not bad right? However what if you could buy a used car for $6,000, maybe a ten year old Honda? Sure it won't be as nice and you may have some intial maintenance to take care of but guess what all cars have maintenance. If you hustle you should be either to buy that car cash or pay it off within a year.
20k with a $2,000 down payment 5% interest
= $289.00 / mo for 6 years.
All in cost after taxes and interest less the down payment
$6,000 with $1,000 for upfront maintenance all in $7,000.
Paid off 1 year after purchase.
5 Years without a 289 payment
= $17,340 in savings
That's more than the down payment on my first house and it's not that hard to do, it's just about being intentional with your money!
If you are feeling overwhelmed on whether to do all of these or none at all just start with one. Start small with a separate bank account and paying yourself first a small amount even $20.00 a month. Once you get that down maybe try another money saving method each month to add to your savings and it will compound from there!