Saving money is challenging, especially when your monthly income is just enough to cover all your expenses. A nice meal at the best restaurant after a long day is a must or a subscription to Netflix is indispensable to relieve all the stress from work or university. You just can’t think of any way to cut your expenses and save some money.
Statistics show that the average Australian has $37,975(AUD) in their savings accounts and 47% of Australians have only one month or less worth of savings in their bank account in 2023.
In contrast, the average American savings balance is $25,898(USD), and the typical American only has $1200 in their savings account. (Average skewed by individuals who have huge amounts of savings.)
The February 2023 edition of the “New Reality Check: The Paycheck-to-Paycheck Report” conducted by PYMNTS in collaboration with LendingClub, revealed that 61.4% of Americans were living from paycheck to paycheck as of July2023. Surprisingly, this statistic encompassed 44.3% of high-income earners with annual incomes exceeding $100,000, despite the average income being $59,384.
It’s evident that our income alone doesn’t dictate our saving potential, particularly for the majority. Instead of focusing solely on increasing income, what we should do is adjust our lifestyle. By incorporating the tips outlined in our blog, I promise that you will be surprised by the amount you can save each month.
1. Create a Budget
The first step is creating a budget. Begin by tracking your monthly expenses to find out where you money goes every month. Often times, you might forget one thing or two that you don’t remember spending money on. Record every expense, either on your phone or in a notebook. At the end of the month, review your expense carefully to create a accurate budget. Adjust and limit your spending on wants such as eating out, sports or partying.
2. Create Your Own 50/30/20 rule
The 50/30/20 rule suggests spending 50% of your income on needs, 30% on wants, and 20% on investment and savings. Change and adjust the rule according to your situation, if you needs constitute a higher percentage on your income, cut back on your wants, that is the goal. Even if it seems daunting at first, write it down as your ideal guideline for now. We’ll discuss how to implement it later in the post.
3. Cut Unnecessary Expenses
After reviewing your expenses, start by cutting out non-essential purchases. Are you paying for a gym membership but hardly ever go? Or maybe you subscribed to Disney+ but find yourself to busy to watch any movies? Cut those expenses, you might have the wrong perception that you need them? But if you rarely use them, the chances are you don’t need them, and they are not worth the money. Plus, you can always sign up again when you need them.
4. Pay off high-interest debts
If you have high-interest debts, make it a priority to eliminate them first. These debts can drain your finances and hinder your ability to save as much as you’d like. Addressing them promptly is key to preventing them from continually wiping out your hard-earned money. Prioritize paying off these debts first will boost your savings in the long run.
5. Cook at Home
If you are spending a substantial amount of your income on dining out, perhaps it is time to cut back on those restaurants visits. I understand how hard it is to resist all that delicious cuisine and desserts, but cooking at home can drastically reduce your expenses. Consider it an opportunity to explore cooking and enjoy your favorite dishes at a discounted price.
6. Use Coupons/Discount Codes/Cash Back Apps
Make the most of all the resources that are available to you. Ibotta, Paypal Honey, Shopback, EatClub, LIven, Easi (for Bubble Tea) all provide cash back, discounts, or deals that can save you some money. Do not feel ashamed of using them. You get the benefits, the companies get more customers, it’s a win-win situation for both of parties.
7. Buy Generic Brands
Opt for generic or store-brand products over name-brand for everyday essentials. Often, generic brands offer the same quality as name-brands, and provide the same function. For instance, many skin care products contain the same ingredients and they provide the benefits, regardless of their brands. Similarly you might find that a shirt from a local store matches the quality of an expensive brands. However, one logo makes it $20 more expensive.
8. Use Public Transportation
While driving can be more comfortable and convenient. Taking public transport can save you thousands of dollars a year. Apart from that, it offers valuable downtime after a hectic day. You can just relax, watch some videos, scroll through social media, or take a power nap. However, it is totally reasonable if you have a specific reason to drive instead of taking public transport.
9. Cut Back on Entertainment Expenses
Look for free or low-cost entertainment alternatives such as outdoor activities, movie nights at home, or community events. If expensive hobbies are draining your finances, put them on hold and consider more budget-friendly alternatives for the time being. With a bit of creativity, you might discover a new hobby that is both enjoyable and affordable.
10. Make use of sales seasons or periods
If there is something you really need or want, consider purchasing during sales events such as Cyber Monday, Black Friday, or Boxing Day. Practice patience and self-control. It is hard to resist the temptations of following the trends, but understanding that a lot of your wants can wait will help you achieve your savings goal faster.
11. Avoid Impulse Purchases
The Internet and social media are extremely dangerous nowadays. In the old days, you have to physically go to a store to purchase anything. But due to the technology, an attractive ad or a TikTok video review can easily make you impulse buy something with a click of a button. What you can do is make the process of purchasing difficult, which is one of the principles in Atomic Habits by James Clear to break bad habits. Make it difficult, be creative, set up two-step authentication (2FA), or lock your wallet in a safe, so you have to open the safe every time you want to buy something online. Over time, I hope this process is annoying and can stop you from impulse buying.
12. Automate Savings
If it is difficult to control avoid impulse buying or spending money on your favorite clothes, food, or entertainment, consider implementing automated savings. Arrange for automatic transfers to your account with a withdrawal penalty on your payday to prevent spending. This method ensure you only spend what you have, effectively forcing you to save a portion of your income.
13. Reduce Energy Usage
Reduce your utility bills by cultivating energy saving habits such as turning off lights, unplugging electronics, and using energy-efficient appliances. Often, we leave the lights and TV on when we don’t need them, which can add up over time. This simple habit can potentially help you save hundreds of dollars
14. Set Savings Goals
Establish clear savings goals for short-term and long-term objective provides motivation. Imagine if I told you that, for the rest of your life, you have to save 20% of your income. What is the first thing that comes across your mind? “Are you kidding me?!”, “There is no way I am doing that”, “It is impossible”. You are likely to feel frustrated, restrained, or even suffocated as time goes by if you don’t have a goal.
Furthermore, it will be extremely difficult to resist the temptations you face every day without a goal,. Having a goal let your brain knows that there is an end to this. This makes it easier to say no to immediate desire and focus on your objectives.
Some short-term goals can be as simple as saving some money for a trip to Thailand, or a new car. For those with long-term vision, your long-term goal can be saving all the money for investment, until you are financially independent!
But what happens when you achieve your goals?
It is common for people to follow their schedule, be disciplined, and strive hard when they work towards their goals, but once they achieve their goals, they revert to their old selves, and everything goes back to zero. People who try to lose 30kg, eat healthy for 1 month, and wake up at 5 am to be productive for 3 months, are likely to achieve their goals, but they are unsustainable.
Therefore, it is crucial to turn your goals into a habit. Some ideas can be repulsive at first, but once they become a habit, they will become more acceptable and more sustainable. Let’s say someone tells you to work 5 times a week every day for the rest of your life. It sounds like a crazy statement if you don’t work out at all. However, if you start doing a 20-minute workup 3 times a week, and slowly increase the duration and frequency of your workout over time. This idea would sound possible and acceptable.
How to make saving money into a habit
There are some mindset shifts and tricks that can help you to build a habit. If you have read “Atomic Habits” by James Clear you are likely to be familiar with what we have and are going to discuss.
The first one will be focusing on your identity instead of your actions. Actions are short-term, but identity is long-term. That being said, actions shaped by your identity is long-term. When you change your identity, actions that aligns with your identity follow. If you are not an alcohol person, you don’t drink, which can remain that way forever. If you have a goal of not drinking for 3 months, you are focusing on your actions, which only lasts for three months.
The same goes for saving money, if you shape your identity to be a person who saves a portion of their income, it is more likely to become a habit you are than setting a goal.
Another trick is what we have mentioned, start modestly, and gradually increase the amount until you hit the target you want. When you level of difficulty is increase gradually, it is less repulsive, because you slowly reset the threshold to a higher level. It takes less mental effort to push yourself to save $50 more over a few months than start saving $1000 right away. Start with an acceptable amount, and slowly increase the amount when you feel more comfortable.
Bottom Line
There are many tips you can use to help you start saving more money today. A goal can certainly assist and motivate you to save your income for better use. However, to make saving into a habit, it takes a more precise and strategic approach.
”Atomic Habits” by James Clear is one of the best books on habits. It teaches you how to build good habits and break the bad ones and gives you all the tips and tricks to achieve that. It also dissect the problems of why people are having difficulty achieving that from the fundamental level and how to tackle them.
“Unleash your potentials and achieve financial freedom”
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