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If you’re struggling financially, perhaps you’re finding it hard to make ends meet, or you never seem to have any money left at the end of the month, it may come as a comfort to know that you’re not alone. According to the author of Money, many people barely have enough to cover their basic living expenses, and a sizeable slice of society is deep in debt.
A recent report indicated that some seven million working-age UK citizens do not have £1000 in savings. This means that if they lose their jobs or suffer an unforeseen financial expense—such as a car repair—they’d have to resort to credit cards to cover the cost of living. And what makes matters more disconcerting is that everything is on finance or subscription nowadays. Cars, phones, entertainment, holidays—all on tap.
Miss managing our money could cause us to be cut off from the 21st century. Failing to make payment could result in being thrown back to the stone age. Is it any wonder that money troubles are among the top five stressors in life? Moreover, for some, money worries are so severe that they cause anxiety attack symptoms and can trigger depression. Charles Dickens put it best when he wrote:
“Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery,” (David Copperfield).
Before we progress any further, I should disclaim that I am not giving financial advice. This article merely seeks to explore possible methods of saving money.
How to start saving money
But as miserable as all that is, thankfully it is not a predetermined path. What I mean by that is you can change the course of your financial trajectory. You can manage your money so that the bills are covered, savings are increased and a respectable standard of living is sustained.
And that brings us to the purpose of this blog.
For the next few minutes, I’m going to share with you six tried and tested tips, tricks and tactics that will show you how to start saving money. But not just save money. There’s more to this blog than that!
The advice below will help you improve your money management skills and take charge of your finances. Many of the lessons below were pinched from several financial publications – such as Penny Pinchers: The Definitive Guide To Money Management, The Little Book Of Common Sense Investing, and The Psychology Of Money. These publications have helped millions of people improve their finances. And if you’re not up for reading thousands of pages on money management, a selection of the key principles from each book is covered below.
So, are you ready to learn how to start saving money?
How to start saving money tip #1: Personal discipline
What amazes me is how infrequently personal discipline is mentioned in money management literature. (And where it is mentioned it’s usually only a passing phase.) Perhaps it’s because they know that most people will run a mile if the ‘D’ bomb is dropped.
Yet, as I see it, personal discipline is the single most important factor for improving financial health. After all, the best financial advice is not worth a dime if we lack the discipline to take action and stay committed. You could put together a brilliant budget (Tip #4, 5), implement a robust payday routine (Tip #6), and expose all superfluous spending (Tip #2), but break the bank the moment you get paid.
The problem with discipline, which again is why few financial gurus will touch it with a bargepole, is that it is notoriously difficult to develop. Strategies on how to strengthen this mysterious attribute are as flimsy and as fickle as the stock market. And what pays dividends for one person yields diminishing returns for another.
How to improve financial discipline
But still, some advice is better than nothing. It’s not without a sense of irony that the best insights on improving personal discipline were committed to paper around 2500 years ago. Aristotle taught us in his Nicomachean Ethics that discipline is a byproduct of the habits we form. Establish good habits – saving consistently, delaying gratification, not overspending – and discipline will slowly develop.
I’m not going to bore you with a long list of ways to form good habits and break bad ones. Breathe a sigh of relief! Instead, I’m going to suggest that you read Charles Duhigg’s excellent book The Power Of Habit.
How to start saving money tip #2: Stop spending!
In his treatise on rhetoric, Aristotle (yes, him again) observed that people ‘become richer not only by increasing their existing wealth but also by reducing their expenditure.’ Before making this sagacious remark, Aristotle delineated essential factors for effectively managing an economy. Though this is instruction for the statesman, the principles apply to our personal economy (or, what the author of Money refers to as 'YGDP': Your Gross Domestic Product). It’s worth reflecting on the etymology of economics: the word is derived from ancient Greece and refers to the ability to run a household.
Aristotle’s principles include knowing your source of revenue and if it can be increased; ensuring that outgoings do not exceed income; and knowing all expenditures ‘in order that, if any part of it is superfluous, it may be abolished.’
Superfluous spending is to wealth what snacking is to health. The only difference is the latter expands your waistline whereas the former shrinks your bank balance.
Another similarity superfluous spending shares with snacking is that it can be fiendishly tricky to identify and frustratingly hard to break. On the surface, a superfluous spend seems innocent enough. After all, a Costa coffee and blueberry muffin on the way to work never bankrupted anyone. That’s certainly true – if it’s a once-in-a-blue-moon treat. But as you’ll soon see, the cumulative cost of small treats can mount up. Frequent ‘micro’ spends erode wealth and hinder our ability to save money.
Small spends add up
After a spot of Googling, I discovered that a black Costa coffee costs £3.80 and a blueberry muffin £3.25. Combined, this innocent snack will put you out of pocket by a measly £7.05 – which is a trifling sum to a cashed-up Westerner. Things quickly change when the expenditure is multiplied over longer time horizons.
A daily trip to Costa – assuming you’re buying the two items above – will set you back £35.25 per week. To put that into perspective, a person on minimum wage will have to labour for over three hours to cover the cost of a daily Costa.
Across a month the sums swell to £141. Over the year this equates to a wallet withering £1,692! Fast forward ten years and you’ll deposit £16,920 into the coffers of Costa – at the expense of yours!
How to start saving money
That’s just one example of how recurring small spends can blow up to big losses. I know that few people religiously visit Cost every day. It was just an example to illustrate the point. But think about the other possible superfluous spends we’re unknowingly making and how they are impairing our ability to save money.
The financial waste would no doubt be sobering. I challenge you to do a check right now. Do a bit of Sherlock Holmes detective work. Slip on your specs, roll up your sleeves and uncover as many superfluous spends as possible. Don’t forget to do your calculations!
How to start saving money tip #3: Set financial goals
Irrespective of the measure, people who set goals stand a much stronger chance of achieving success. A well-thought-out goal that has been stress-tested against the SMART principle can compel a person to move mountains. Goals imbue us with a sense of purpose. They fuel motivation which drives sustained action. Few people achieve anything of worth without first formulating a series of sets that ultimately lead to a clearly defined goal.
The power of goal setting stems from the process of making the implicit explicit. Converting a cognitive aspiration into a plan drafted on paper transforms it into a physical medium. Not to get metaphysical on you, but this ‘reification’ of the dream makes it real. And by making it real, we start to believe it is in the realm of possibility.
The goal is made more achievable if we take the time to split it into stages (also called ‘milestones’) and then strategically situate them over a timeframe (say 12 weeks). A friend of mine used this method to pay off her mortgage 17 years earlier. Here’s how she accomplished one of the most coveted financial feats.
How to pay your mortgage off early
Step 1: First, she formulated her goal and made it visible (see How to start saving money tip #5).
Step 2: She sat down with her partner and crunched the numbers. Once she worked out how much was left on the capital, she combined both incomes (net of essential expenditures).
Step 3: When she knew the numbers – remaining capital repayment + net income – she worked out how many months it would take to save up the outstanding balance on her property. Ten years was too long! Back to the drawing board.
Step 4: She scratted around her accounts and totalled her available savings. But even after deducting her savings, it would still have taken her eight and half years. This was too long.
Step 5: She scrutinised the las six months of bank statements to identify superfluous spending (see How to start saving money tip #2). Each time she spotted one, she wrote it down and the amount. To her surprise, she was wasting hundreds of pounds a month on unnecessary items, items that she could comfortably live without. As of that moment, she and her partner pledged to ‘abolish’ all superfluous spending.
Step 6: The combined annual cumulative cost of those superfluous spends was calculated and then added to her totals. This brought the number of years down to six, which was still too long but much more manageable.
Step 7: Because her goal was to pay off her mortgage in five years or under, she and her partner decided to sell several expensive personal items that had become redundant. They decided to sell the second car – her husband used the proceeds to purchase a pushbike and started cycling to work. This single change freed up thousands of surplus pounds. They also decided not to go on holiday until after the mortgage was paid. A holiday would be their special reward for achieving their goal. In addition, they sold personal effects such as jewellery, books and clothes.
Step 8: Now with her goal set and plan in place, she put it all into action. After four years and eight months of living like a cloistered monk, she settled her mortgage. Receiving the deeds to her – HER! – house, she said, was way more rewarding than the holiday.
Essential reading: How To Pay Off Your Mortgage In 5 Years >
How to start saving money tip #4: Go on a cost-cutting spree
A cost-cutting spree shares several similarities with a spending spree. The one slight difference, of course, is that instead of dolling out your dosh at lots of different shops, the aim is to find lots of different opportunities to save money.
Though this tactic takes a bit of effort to get off the ground, once you start, you’ll be amazed by just how much you can reduce your monthly outgoings. Here’s a recent example of when I went on a cost-cutting spree.
How to save money on groceries
Like many people, as national inflation swelled, I began paying closer attention to the increasing prices of products. The increasing prices of products seemed limitless. When my weekly grocery shop topped £80, I decided to take action.
While we’re powerless to do anything about national inflation, we do possess the power to alter what we buy. So, one dreary Saturday morning, I sat down with my most recent shopping receipt and a highlighter. I put a line through all the items that were either superfluous or decadent. (Who needs a bag of whole nuts that cost £7.40?)
In fewer than five minutes I’d managed to reduce the bill by a satisfying £17.49. Over a month, that would be a sweet saving of £69.96 and a whopping £839.52 in a year.
You can apply this tactic to many other expenditures. For example, you can look for cost-cutting opportunities in your bank statement. Put a line through all those unnecessary recurring purchases. Add up the total potential savings. This last bit is crucial as it motivates us to make cuts.
How to save on electric bill
This strategy works on utilities as well as products and commodities. However, the method of application is slightly different. Before you start slashing the price of your utilities, you need to know how much you’re currently paying.
To gauge an accurate figure, I suggest combining the costs of your previous three bills. When you’ve got a total, divide it by three to get the mean average. Example:
Gas and electric bill for May = £116
Gas and electric bill for June = £112
Gas and electric bill for July = £114
Mean monthly average = £114
Establishing the average cost of your utilities bill provides you with a metric against which you can gauge performance. Now the fun bit: energy conservation! Take a quick tour of your home to find where you can save energy. Switch off standby lights. Turn down thermostats. Reduce the temperature of the fridge. Only wash at 30 degrees.
This won’t work unless you enlist the family (assuming you don’t live alone). Thus, I advise that you hold a family meeting. Tell them your plans. How it can benefit the household (and the environment). Set some energy usage ground rules and immediate action drills. Some examples:
Rule 1: Turn off all lights once you leave a room.
Rule 2: Do not use multiple devices simultaneously – watching TV while Googling on a laptop and swiping on a phone.
Rule 3: If it’s yellow let it mellow. If it’s brown flush it down!
Rule 4: All devices to be switched off at 10 pm.
Rule 5: Before cranking up the boiler, try wearing a few extra layers first.
How to start saving money tip #5: Make your finances visible
If you really want to know how to save money start making your finances visible. This is a time-honoured technique with a proven record for helping people achieve their goals.
In his book Smarter, Faster, Better, Charles Duhigg regales us with a fascinating research project that investigated strategies to raise the performance of professional typewriters.
To cut a long project short, researchers found that they could ‘significantly’ increase the typewriters’ productivity (measured in ‘words-per-minute’) simply by writing a target on a piece of paper and placing it on their desk.
How to save money fast
The authors of the highly popular book, The 12 Week Year, recommend a similar strategy. In addition to setting shorter time horizons for your goals (12 weeks as opposed to the conventional 12 months), your goals must be made visible. The authors suggest purchasing a dry wipe whiteboard and positioning it somewhere prominent. (Mine is situated on a wall in my home office.)
On one side of the whiteboard write out all your finances – savings, debts, earnings, outgoings, car finance, and remaining capital on your mortgage. On the opposite side include a couple of 12-week targets. These could include reducing your debts by X per cent, contributing Y amount to your savings, or overpaying Z amount on your mortgage.
This strategy is one of the best ways of how to save money fast. A short-term target made visible is like rocket fuel to your motivation. As I discussed elsewhere, being constantly reminded of your goals keeps you on track and heading in the right direction.
How to start saving money tip #6: Payday routine
I’ve heard many people say that they’re skint within a week of payday. After their funds drain dry, they begin digging into the bottomless pit of their overdraft. The deeper they dig, the harder it is to climb out the next month. And so the vicious cycle begins. To think, we haven’t even factored in essential outgoings (bills), basic living expenses (food and fuel), and those luxuries that make work worth the effort (meals out, entertainment, an occasional treat).
Anybody whose finances are in such disarray will find saving money an uphill battle. But there is a simple solution to this problem.
A ‘payday routine’ is an effective method of managing your money. Implementing a robust routine (and sticking to it) can ensure that you never dip into your overdraft and that you have enough left to spend and save. Below I’ve outlined the key steps to getting your payday routine off the ground.
Payday routine
Step 1: First you need to gather info on your current financial position. You need to know where your money is going, what superfluous stuff you’re buying if you’re overspending, and where you can make savings. In short, conduct a full financial audit. Tracking, measuring and monitoring are fundamentals of money management. As P. F. Drucker said, what gets measured gets managed.
Step 2: Now it’s time to manage. This starts with weighing your income against your outgoings. How much do you earn (take home) and how much does it cost to cover all outgoings? Put the two figures side by side.
Step 3: The next step is to allocate portions of your pay to essential outgoings. If it’s not done already, this should be automated. Set up direct debits to go out on the first of each month to cover your bills.
Step 4: When the essentials are taken care of, whatever is left must also be allocated. To what though? To pay off debts (that overdraft, credit cards, and the mortgage). To savings (same as above, set up a direct debit to go out on the first of every month). And of course, to luxuries.
How to budget and save money
I know this all sounds a bit depressing. Working nine till five for a month just to hand over your hard-earned money to everyone except yourself. That’s not a fair deal.
But if you stick to your payday routine, continue to reduce your superfluous spending, cut costs, set budgets, and drive down your debts, the portion you allocated to the area will start to shift. At the moment a full 90 per cent of your income might well be going on essential outgoings and servicing debts.
However, when all those small savings start to add up, and your debts begin to dissipate, the percentage will shift in your favour.
While I’m yet to find a recommended optimum split (though I have heard 50/50 bandied about), we naturally want the largest slice of the pie left over for personal consumption. In time, you can have nearly the whole pie. Until then, it’s advisable to set yourself one or two 12-week goals. These could be:
How to start saving money key takeaways
Financial health hinges on our ability to maintain personal discipline. Exercise self-discipline enables us to stick to budgets, delay gratification, and remain faithful to our payday routine. While there’s no secret formula for improving discipline, it’s often likened to a muscle. This is encouraging because, like a muscle, with persistent work and effort, it will grow stronger. Each act of self-discipline – deciding to save instead of spending or making do with what you’ve got instead of buying new – is like a barbell curl.
Recall Aristotle’s lesson: people become richer not only by increasing their existing wealth but also by reducing their expenditure. According to this insight, saving money is not just about how much you deposit in your bank account each month. It is also about what you decide not to spend your money on. A simple way to determine what’s an essential expenditure and what’s a luxury is to separate them into ‘needs’ and ‘wants.’ The rule is, if you can get by without them, it’s not a need. When you compile a list of expenditures under the two categories (needs and wants), calculate how much each column is currently costing you. The objective is to reduce all costs. However, you’ll invariably find that the largest saving will be made by reducing the needs.
Setting financial goals is a powerful way to increase your savings. Before setting a goal, you need to know where you are and where you want to be. The first thing you should do, then, is establish your ‘financial baseline.’ If you followed the key takeaway above, you have already done this. A financial baseline is a snapshot of your earnings and expenditures. I recommend writing it on a blank piece of paper. That way you can see it in a single glance. From here, you begin formulating your financial goals. At this stage, avoid getting carried away. More than three goals may overstretch your money. Now all that’s left is to implement your plan.
Aristotle inspired us to seek out and abolish superfluous spending. We can take this further and look for opportunities to cut costs. This often requires that we tighten our belts and, deep breath, go without. Some examples include simplifying our diets, conserving energy (putting on a few extra layers instead of cranking up the thermostat), cycling to work instead of driving, and the list of potential opportunities goes on.
Making goals and aspirations visible has yielded profound results in many professions and fields. Remember the typewriters who improved their words per minute just by having a target in front of them? This strategy is equally impactful when applied to personal finances. Writing your goals on a dry wipe whiteboard, preferably in large colourful font, serves as a continual reminder. Few things are better at boosting motivation.
The final key takeaway is to implement a payday routine. Before you can organise your routine, you need to know your financial baseline. This is explained under the second how to start saving money key takeaway. With your baseline made bare, begin allocating your income to different funnels – as they’re sometimes called. A funnel could be your savings account, a credit card debt, or a bill. The robustness of your routine will be strengthened if you automate as many outgoings as possible. It’s always best to set these to go out on the first of every month.
What now?
In his Meditations Sacrae, Sir Francis Bacon claimed that 'Knowledge itself is power.' But we know that, taken literally, this is not true. Knowledge is not power. Knowledge will not help us get things done, achieve our goals, or improve our lives. If knowledge remains in our brains it is as good as useless. In fact, it can be worse than useless. Knowledge that is prevented from flowing goes stale and stagnant.
For knowledge to generate power, to drive action, it must be applied. Napoleon Hill understood this well when he wrote that 'KNOWLEDGE will not attract money (or any other kind of success) unless it is organised and intelligently directed, through practical PLANS OF ACTION, to [a] DEFINITE END,' (Think And Grow Rich).
You are intelligent. You know how to formulate a plan and establish a goal (a 'definite end'). Now you have plenty of actionable information that will help you save money and improve your finances. All that's left is to act!
Start saving more money with this essential reading list
About Dr Laura Allen –
A Chartered Psychologist & Integrative Therapist, Dr. Allen specialises in a broad range of therapeutic methods. She is a published author of numerous research papers in the field of Positive Psychology. Dr. Allen works one-to-one with clients and supervises other practitioners. She is also a proud member of the British Psychological Society assessment team supporting psychologists in training.
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