We all know that spending less and saving more would make life a whole lot easier.
But why is it so hard to do?
Because we are focussed on goals, not systems.
What does that mean?
When we are goal focussed with our budget, we often think in aspirational terms, such as “I want to have $10,000 in savings”.
Whilst that’s a great goal, it’s often hard to reach in practice. This is because you’re trying to balance your budget on the go – in your head. Unfortunately, a lot of your spending occurs without your full awareness.
Spending is an everyday occurrence, and as such, is very hard to measure and change without putting daily, weekly, and monthly habits in place.
That’s where a system based approach comes in.
When we say system, we’re referring to small lifestyle habits that you can consistently stick to in order to balance your budget with full awareness.
Forget about your savings goal; when you implement some of the habits below, you’ll have a budget system in place that will inevitably lead to less spending, and more saving, without you having to think twice about it.
Why should you care about a good budget system?
Because your financial health depends on it.
Here are some of the benefits of spending less, and saving more:
- Financial security / rainy day fund
- Avoiding debts
- Maintaining a healthy credit score
- Making money off of your money
In short, spending less and saving more will change your life for the better.
Habits to Help You Spend Less and Save More:
Record your daily spending
Don’t start by changing your spending habits.
Start by recording what your spending habits currently are.
Sound counter-intuitive? You’re probably excited by a savings goal, and want to start saving money straight away.
If you try to jump straight to saving, you will ultimately fail.
Because you don’t truly know your spending self.
And we’re not talking about knowing yourself in a existential way. We’re talking about understanding who you are as a spender.
Recording your daily spending habits will reveal to you who you are as a spender. What kind of things you’re most likely to spend money on frequently; what kind of products or services you splurge on impulsively, and how your spending is affected by what kind of mood you are in.
For at least one week, record all of your outgoings in a notepad, or on your phone. Make sure you bring this notepad (or phone) with you as you go about your daily activities.
Record what you purchased, how much you spent on it, and why you spent on it.
Here’s an example of what a single purchase on a single day might look like when recorded:
Purchased: A double scoop ice cream cone
Why: I just finished work and was feeling stressed out, it’s also hot today.
Reflecting on this purchase at a later date, you might realise it’s part of a pattern of ‘post work’ spending, where you buy a comfort snack as a way to de-stress after a long day of pushing paper.
The more you become self aware as a spender, the easier it’ll become to change your spending habits once it comes to that.
But to start, simply focus on recording your normal spending for at least 1 week.
You have to do this religiously for it to work, so make sure you record every purchase soon after you make it!
Keep a wishlist for sudden purchase urges
As you become more aware of your spending habits, it’ll become easier to reflect on your purchase urges, even the impulsive ones.
Whenever you notice you have a big purchase urge – for example, you want the newest iPhone – instead of jumping the gun and making the purchase, simply record it on a ‘wishlist’.
You can do this on paper, or using the Amazon wishlist browser extension.
Make a promise to yourself that you will only make a big purchase after it’s been on your wishlist for at least 2 weeks. If you can still reason that the purchase is a good investment at that time, then go for it!
Chances are though…
When you look back at all the items on your wishlist, you won’t even remember why you wanted those things in the first place!
Automate a savings transaction to go out from every paycheck
A great way to save a decided upon portion of your paycheck is to automate the transfer ahead of time.
Hopefully your employer pays you on specific dates, in a timely manner – making this change very easy to implement.
When you’ve become familiar with your monthly budget, and have decided on a realistic amount of money to be saved from each paycheck, you can use internet banking tools to automate your savings.
Simply create a repeated, scheduled transaction from your everyday account to transfer a portion of your paycheck to your savings account.
Make sure you’re using a high interest savings account that has increased benefits the longer you leave your money untouched. This will give you more incentive to not spend the money that has been automatically saved.
Shop around for great savings accounts, or alternatively invest in ETFs
One of the biggest benefits of saving money is:
You can make money off of your money
How does that work?
Your savings can multiply in high interest savings accounts, or whilst invested in the market.
Either way, you’ll want to do your research.
Regardless of what bank you’re with, you should shop around for the best interest rate on savings accounts, even if this requires chasing high interest rates by moving your savings around from time to time.
A high interest rate on your savings will help you earn on the money you’ve already saved; effectively giving you an incentive to not touch your savings, whilst also helping you to earn on your earnings!
As for investing, stay clear of live trading – or any investing strategy that requires you ‘time the market’.
You will also want to avoid investing in specific stocks, as you won’t have the time or know-how to really be able to pick the right ones.
Simply invest in ETFs.
These are Exchange Traded Funds. These funds track specific indexes like the S&P 500. ETFs are tend to trend upwards over long periods of time, and even Buffett has recommended his family members invest in this way.
If you choose to invest in ETFs, make sure you don’t invest ALL of your savings. To get the most out of your investment, you’ll want it to hold for at least 5 years.
The longer you wait, the better your gains.
This means you will still want at least 2 paychecks’ worth of savings in a normal savings account; something available to you should you need a rainy day fund.
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