We all want to save money (at least those of us that read personal finance blogs do). But even though saving sounds so simple, it is really hard to get started. With this article, I will give you a step by step guide to spending less and saving more. I will finish this series with specific articles on saving on specific commodities.
Step 1: Determine if you are ready to take this plunge. Don’t do it because someone else says you need to save. It is really hard to succeed in something you are not interested in.
Step 2: When you are ready to start saving, bring out all your receipts and credit card bills from the last 3 months. Categorize each expense as necessities, comforts, and wasteful expenses. If you have a family, do this exercise with them. If you live alone, ask a trusted friend or family member to review your classifications. Some examples from my classifications are:
- necessities: food, rent, phone
- comforts: basic cable, good food (I don’t live on ramen, mac & cheese, or cereal)
- luxuries: eating out, internet and email on cell phone, vacation
Step 3: For the necessity category, determine a percentage by which you can cut costs. Since necessities are, by definition, necessary, you will have to choose a small number like 5-10%. See if you can negotiate your rent or refinance your mortgage to reduce living costs. You may want to opt for Magic Jack or Vonage instead of your land line. You may even decide to give up your land line and use your cell phone as your primary phone. It may be possible to cut some costs by downgrading your cell phone plan to one with less minutes; but make sure you do not go over the allotted minutes, or you will have to pay hefty fees. Cut costs until you have eliminated 5-10% of your costs.
Step 4: Now pick a percentage for your comfort category that is higher than the percentage you chose for necessities. This could be somewhere between 15-25%. For example, I chose to downgrade my digital silver cable package to basic cable. Cut costs until you have cut your comfort expenses by the percentage you chose. Be ruthless – you can always add these back on if you can’t live without them.
Step 5: Now pick another percentage number for your luxuries category. Depending on how serious you are , this can go up to as much as 70-80%. I chose 50% and have accomplished it solely by reducing the number of times I eat out at restaurants, and picking cheaper restaurants when I do go out.
Step 6: It will be hard at first, but do stick to the new plan for at least 6 weeks. After 6 weeks, if you are still unhappy, revise your percentages and bring back a few of those things that you really missed. Remember, the goal is not to be miserable and rich; rather, you want to live a richer life, both in terms of fulfillment and the health of your bank account. Don’t compromise with that.
Step 7: Do NOT, and I repeat, do not spend the money you saved on something else. Save it. Keep it safe. At first, just put it in a high yield savings account (I know these things do not exist anymore, but you can find somewhat higher yield accounts in online branches of banks. I use CitiBank online).
Step 8: Sit back, relax, and enjoy seeing your savings grow day after day. It wasn’t that hard, was it?
I like how you included luxuries because let’s be honest we all like to spoil ourselves once in a while. Before any savings occur I agree that it is important to ask yourself if you are ready. Many people want to save but they are simply not ready to put the effort in. Thanks for checking out my blog and keep up the hard work!