According to a Forbes Survey, 69% of Americans have less than $1,000 in savings. That is an alarming statistic! Unfortunately, financial literacy is not something that is traditionally taught in our public education system. That’s the reason posts such as this are created!
For years, I struggled with money. I was constantly over-drafting my account and paying exorbitant fees. I finally got fed up of living paycheck to paycheck, trying to stretch that $12.13 for 3 days until I got paid, and getting overdraft notices in the mail. It was time to get control of my money. I began educating myself with personal finance books purchased on Amazon, and I eventually went on to complete my bachelors degree in Finance.
In this post I will teach you tips and techniques I used to start saving money.
How to Save Your First $1,000
The first goal I made when I decided to change my money habits was to save $1,000. I felt like this both a significant amount of money and an achievable target. Keep in mind I was making $13 an hour at the time. To accomplish this goal, I set a target to save at least 10% of my after-tax earnings.
1. Honestly Examine Your Monthly Spending
Understanding where you are spending your money, and how much, is the first step to saving money. Fortunately, we live in a world where there is an app for nearly everything and there are several great personal finance applications. Personally, I use Mint.
Mint is a fantastic tool to get a snapshot of your finances. I highly recommend creating an account and syncing your various accounts. You can easily connect your bank account, credit cards, investment accounts, student & auto loans, and your mortgage. Mint then will categorize your expenses and break down your spending by category.
2. Determine Where You Can Reduce Spending
The next step is to look at your spending habits, and figuring out where you can reduce your spending. Your not likely able to easily reduce your rent/mortgage, car payment, or student loans, but you you can cut back on discretionary spending.
I was surprised, and a little embarrassed, to see how much money I was spending going out to eat and going out for drinks with friends. Even that $5 coffee you’re buying each day turns into $150 month. Instead of going out to eat four times a week, try going grocery shopping and meal prepping. Instead of going out for drinks at the bar, buy a 12 pack of beer and invite your friends over.
3. Pay Yourself First
This might be the most important step of them all. I vividly remember reading the famous personal finance book Rich Dad, Poor Dad, and being struck by the “Pay Yourself First” concept. The book explains that before paying your debts (other people), you should first save your money away and “Pay Yourself”. I took this philosophy to heart and began putting away 10% of my paycheck into a Vanguard money market account before spending any money on my bills.
Why did I put my money into a Vanguard money market account? It made it more challenging to access my money. Having a simple savings account with my bank made it to easy to simply just transfer the money back to my checking account.
By transferring the money to a brokerage account, it would take 3 business days to transfer the funds from my money market account to my checking account. Additionally, there would be no debit card for me to use to access the funds.
This may seem a little extreme, but knowing it would take several days for me to get access to the funds reduced the temptation of using the money on impulsive spending.
Once you have paid yourself, then it is time to pay your bills. Once you’ve paid you bills, whatever is leftover is your discretionary income.
10 Tips to Help You Start Saving Money
1. Invite Friends Over Instead of Going Out
Going out for dinner or drinks can be expensive. Having a potluck dinner, playing board game, hanging out around the fire pit, or watching movies are all inexpensive ways to have fun at home rather than a night out on the town.
2. Cut the Cord on Cable TV
Not too long ago, cable TV was the only choice for video entertainment. Now there is Netflix, Amazon Instant Video, Hulu, HBO GO, SlingTV, and the list goes on. Cutting the cord on cable TV and substituting it with less expensive options is a fantastic way to save some extra cash each month.
3. Plan and Prepare Meals Rather Than Going Out to Eat
Going out to eat multiple times a week can quickly add up, especially when you have a large family. Planning out your meals ahead of time, creating a shopping list, and then going shopping for all the ingredients can cut your monthly food expense drastically. Busting out the old crock pot for some inexpensive meals can not only save you money, but time as well.
4. Negotiate Rates with your Credit Card Issuer or Consider a Balance Transfer
If you are paying a lot of interest on your credit card, then lowering your interest rate on those cards is in your best interest. If you are making your payments on time, then you do have some leverage in negotiating your interest rate.
Call the number on the back of your card, and explain your request. Let them know that you have been making your payments on time and you wish to have your interest rate reduced.
If they are not willing to lower your interest rate, you can look for balance transfer credit cards that have an introductory 0% APR that can save you a considerable amount of money while you pay down your debt.
5. Have a Yard Sale
Having a yard sale can be a great way to generate some quick cash. Take an inventory of your possessions and consider how often you are using these items. If you haven’t used the item in the past 2 years, consider selling it at a yard sale, using an app like OfferUp, or selling it on Craigslist.
6. Cancel Subscriptions to Services You’re Not Using
Are you listening to those audiobooks from your Audible.com subscription? Are you watching TV shows and movies on your Netflix account? Simply taking a look at your bank and credit card statements and seeing if there are subscriptions to products or services you no longer need can save you money each month.
7. Start Couponing
You may have seen the TV show “Extreme Couponing” and see people getting an obnoxious amount of toothpaste and only spending $.10 or something crazy. You don’t have to go to the extreme they go on that show to save some money. While i’m no couponing expert, there are tons of websites and blogs that share their couponing tips to save money while doing their normal shopping.
8. Make a Game Plan to Pay Off Debts
While this may not seem like a way to save money, strategically paying down more on your higher interest debt and paying the minimum payment on your lower interest debt, you can significantly reduce the amount of interest you are paying each month. You can also look into consolidating your debt to get a lower interest rate.
9. Go Through All of Your Clothes
It is always tempting to purchase the trendiest new clothing of the season, but going through your closet and taking an audit of what you already own and coming up with new outfits can reduce the urge to buy new clothing. You can even sell your clothes to a used/vintage clothing store or at a yard sale.
10. Perform Routine Maintenance on your Car
Cleaning your air filter, making sure your tire pressure is correct, and changing your cars oil within your manufacturer’s suggested intervals can all increase your car’s gas mileage, thereby saving you money on gas. Regular oil changes can also reduce wear and tear on your engine, prolonging the life of your car’s engine.
While some of these tips may seem like common sense, they can take a lot of discipline to actually do consistently. I’m a competitive guy and I always like a good challenge, so finding a friend to have a money saving challenge is a fantastic way to keep you motivated on saving.
What money saving tips do you use?