5 Simple Strategies to Save More Money NOW!!!
Last Friday, August 26th, Federal Reserve Chair Jerome Powell spoke at the Federal Reserve Annual Symposium in Jackson Hole. During his speech, he was most notably quoted for saying,
“While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”
And he’s right! Inflation is the highest it’s been in over 40 years, we’ve already recorded two consecutive quarters of falling GDP, and companies like Snap, Shopify, Robinhood, and more all announcing significant layoffs. Even one of those facts could cause reasons to worry. So, how can we prepare for it? One way is to save more by implementing these strategies. Let’s get into it.
1) Track your Spending
The first step and likely the most important is to start tracking your spending if you haven’t already. If you’re already tracking, keep up the good work! As we discussed in “3 Millionaire Mindset Changes to Increase your Net Worth”, tracking your spending keeps it in the forefront of your mind. Since you’ll become more conscious of where your money is going, it will enable you to make better choices on where you want to put your money. It will also make the rest of the strategies we’re going to talk about a lot easier to do effectively. Remember, "What gets measured gets managed”.
Now, there are many ways to go about tracking your spending and saving. One common way is to use Budget apps like Mint or YNAB (You Need A Budget). The way these apps generally work is you connect your bank accounts to the service and they will track and categorize your spending for you. Ideally, you don’t need to go through your bank statements. The app will sort it all out for you. There are some shortfalls with using apps though. They do occasionally miss categorize spending. For example, if you buy gas from one a grocery store addition like Costco or Kroger, the app may categorize the spending as grocery instead of gas. The other is that these apps are relatively hands-off and passive. Instead of you actively tracking your spending yourself, these apps track it for you, so you may start to ignore it. The information will be there, but if you don’t have to actively update it yourself, you may stop paying attention.
Personally, I like to do active tracking, meaning that I update and track my spending myself. Instead of the hands-off approach of an app, I review my own bank statements every week to see where I over spent or if I have extra money to safely invest. I created my own savings tracker I update weekly and, Coming Soon, you’ll be able to download your very own version. The Awesome Money Tips FREE Starter Savings Tracker Template is a fully customizable spreadsheet that allows you to track your expenses, see where you can cutback, and give your money a job to set you up for your financial goals. Whether you want to retire early or just want to make sure you’ll never have to live paycheck to paycheck again, this template can help you.
2) Pay Yourself First
Now that we’ve started tracking our spending, we’ve learned some important things. We’ve determined how much money we need for essential expenses like rent or utilities and how much we have for saving and entertainment. One great way to make sure you don’t overspend on entertainment or eating out is to Pay Yourself First. The way to do this is to set up automatic contributions to savings or retirement accounts so that your putting aside money before you can spend it. You’re paying your future self before the bank.
One great way to do this is contributing to your employer’s 401(k) Program. If your job offers a 401(k), when you set up allotments, your company will take that money out of your paycheck directly and contribute it to the 401(k) funds you’ve selected. This all happens before you even receive your paycheck. You then end up feeling like you make less money than you actually do and it helps you subconsciously spend less. It also guarantees you put money away for retirement. Now, if you’re employer doesn’t offer a 401(k) or you’re self employed or so on, you can still set up automatic contributions. These will just come out of your bank account instead of directly from your paycheck. This can be set up for automatic Roth IRA or High Yield Savings Contributions. No matter what though, when you set up the automatic allotments, you want to Be SURE your essential Expenses are Covered! You can’t be maxing out your 401(k) if that means you won’t be able to pay your rent each month. That’s where tracking comes into play.
3) Stick to the “72 Hour Rule”
Impulse Buys are when you make a purchase without any advance planning or forethought. Prime examples of this are those candy bars set up right by the register in the grocery store. While your waiting, they're trying to get just hungry enough so you'll spend just a little more money. These are emotional purchases spurred on by circumstance. To avoid this kind of rash spending, you can implement the “72 Hour Rule”.
The “72 Hour Rule” is simply waiting at least 72 hours (or 3 days) before you can make a non-essential purchase. By creating a waiting period, you take the emotion OUT of the purchase. This allows the logical side of your brain to step in and help evaluate if this is something you really want. If you still want and value the purchase after 72 hours, then go for it! Although, at least personally, I find more often than not that waiting before making a purchase usually leads me to forgetting about or not wanting the item later, unless it has real value. money on thing.
For this rule you can set whatever time window you want for this rule, but you’ll want to avoid waiting less than 72 hours. Consider it the minimum time frame, but you could always wait longer. You can also add other stipulations to the rule to make it easier for you. For example setting a dollar amount requirement. The amount will be different for everyone based on financial goals and income, but you could say you have to wait 72 hours for any purchase over $20. That way you don’t stress the occasional $5 cup of coffee and also don’t overspend on the big stuff. You can also set different tiers, such as 72 hours for over $20, and 30 days for over $100. Whatever rule you need to keep on your goals, you should use. At a minimum, creating a 72 Hour wait period or longer will help cut down the emotional spending.
4) Dollar Cost vs Time Cost Analysis
Beyond waiting to make a purchase, you will want to try to find other ways to value that purchase beyond you’re desire. The price of an item is a simple value tool but how does that Dollar Cost actually effect you? Is the price of this item really worth it to you? One great way to evaluate that is to compare the “Dollar vs Time Cost”.
Now unless you’re living solely off investments or some other passive income, you’re likely working at a job to make active income. When you do this, your job is really an exchange of your Time for Money. Your time has a dollar value! Once you know what that dollar value of your time is, you can then calculate the Time Cost of that item using this equation;
Item’s Dollar Cost / Hourly Pay = Item’s Time Cost
For an example, let’s say want to buy a nice, new Electric Guitar and you find one for $200. At your current job, you’re paid an hourly wage and you make $20/hour. Using our equation above, you divide the Dollar Cost by your Hourly Pay to get 10 Work Hours of Time Cost.
The math here is pretty easy with an Hourly Wage because each hour of your time is already given a dollar value. But what if you work a job with an Annual Salary? Then you need to break your annual salary down into hours. For this to work, you need to know there are 52.143 Weeks in a Year. So to breakdown your annual salary as if it were hourly, you would first need to multiply 52.143 times the Number of Hours you work per Week. Then you would divide your Annual Salary by that number.
Annual Salary / (52.143 Weeks per Year x Hours per Week) = Hourly Salary
So, let’s use the previous example of wanting to buy the $200 guitar, except now you make $50,000 a year. The average work week in the us is 37.5 hours per week. Using that, we’ll divide $50,000 by 52.143 weeks multiplied by 37.5 hours to get $25.57 per Hour;
$50,000 per Year / (52.143 Weeks x 37.5 Hours) =
$50,000 / 1,955.4 Hours per Year = $25.57 per Hour
So now, that $200 guitar at $25.57 per Hour would cost you slightly less than 8 Hours of work.
Now you know how to do a “Dollar vs Time Cost” Analysis. In either example, whether the guitar is worth 10 extra hours of work or only 8 extra hours is up to you. The value is totally up to you but this will help give you another perspective on things. Now you can ask yourself, “Am I willing to work X Extra Hours just to own this thing?” If not, don’t waste the money or the time!
5) Do a “Regret Check”
Regret is defined as “a feeling of sadness, repentance, or disappointment over something that has happened or been done.” I think it goes without saying, but it’s easy to tell from that definition it’s something to be avoided. Nevertheless, regret from purchases are so common there is even a term for it; ”Buyer’s Remorse". After reviewing different polls and studies, I found that roughly 70% of Americans have reported experiencing “Buyer’s Remorse” in one form or another, from things as small as clothing purchases all the way to homebuying. How can we avoid spending money we’ll regret losing later? Before you buy, do a “Regret Check”.
A “Regret Check” is simple and goes hand-in-hand with the “72 Hour Rule” and “Dollar vs Time Cost”. While you’re waiting your 72 hours to make a purchase and assuming you might think the item is worth those work hours, you’re going to ask yourself a few questions based on the purchase. The questions are designed for you to determine the Longevity, Frequency, Quality, and Risk of Regret of a purchase. Let’s look at how this works.
For Items or Things, you want to ask yourselves these questions;
1) Will I Still use this Item One Year from Now?
2) How Often do I Expect to Use this Item?
3) Is There OR will There Be a Newer, Better, and/or Cheaper Version within 6 months?
4) Can I Return this Item?
Your answers will then help clue you in if this is a good purchase or not. For example, if we answer Question 1 with YES to using it in a year from now, that means it has longevity for you and could be worth having. However, let say you answered Question 2 with only using it once a year. This shows a lack of frequency an maybe you shouldn’t buy it, but instead maybe you can rent or borrow the item from a friend. If you were to use the item daily or weekly, then renting would probably be more inconvenient than owning. Question 3 works to determine quality in two ways; it encourages you to research other options (shop around) and resists buying quickly outdating items. For example, if you’re considering buying a new cellphone but you expect Apple will release a newer, better one in a month, you might want to wait for the newer one. Either way, this questions encourages you to research to avoid making a bad decision. And finally, Question 4 is our “fail-safe” question. If the other questions can’t make you certain of a purchase, Question 4 helps evaluate our “Risk of Regret”. For example, if you answer YES to Question 4, then you can return the item if you decide you regret the purchase once it arrives (Lower Risk of Regret). However, if you’re on the fence after the first 3 questions AND you answer NO to Question 4, there is no fail safe (Higher Risk of Regret).
Now let’s see how the questions change for experiences or services, like going on a trip or taking a class. For Experiences and Services, we’ll ask ourselves;
1) Will I Enjoy the Memory of this Experience or Service One Year from Now?
2) Will this Experience or Service provide me with a New Skill or an Understanding I can use Later?
3) Would Now be the Best Time to Enjoy this Experience OR is this the Best Company for this Service?
4) Can I get a Refund if I Change my Mind?
You may be able to tell that these questions are very similar to the ones for an item, but for experiences. If you can answer YES to all these questions, then this experience is likely a good idea with a low Risk of Regret. That being said, even with all these questions, we can’t be certain we won’t regret a purchase or experience but we can mitigate the risk of it. If you are choosing between an Item or Experience however, statistically Americans report regretting travel only about 35% compared to 70% for items.
The Wrap-Up
Implementing these simple strategies can help you save more money right away without costing you anything. Of course, what I hope you takeaway with some other insights are;
Tracking your Spending keeps you Conscious of where your Money is Going
When setting Savings Goals, Percent of Income Save is BETTER than Dollar Amount of Income Saved (% > $)
Pay your Future Self First by setting up Automatic Contributions
The “72 Hour Rule” creates a Waiting Period to Reduce Emotional Purchases
You can Wait Longer but AVOID Less than 72 Hours
Your TIME HAS VALUE! Use it to Evaluate Purchases
You can Always Earn More Money, but you CAN’T Get More Time!
Use a “Regret Check” to determine a Purchase’s Longevity, Frequency, Quality, and Risk of Regret
All these strategies should help encourage you to save more money, but everyone’s financial situation and goals are different. If you need more help or suggestions, you should consider talking with a Certified Financial Planner. No matter what Financial Literacy is the Number 1 Key to Financial Success! Keep learning!
*Disclosure* This is NOT financial advice and I am NOT a Certified Financial Planner. All information is provided for educational purposes only and is not to be construed as advice. Everyone’s financial situation is different and requires individualized planning. Seek out a Certified Financial Planner for assistance with your own financial situation.
