There is no greater feeling than having independence and the freedom to choose what you want to do when you wake up in the morning.
I’m not there yet and I’ve possibly got a long way to go. This is my long-term goal: to become financially independent. You might be saving money for a house, or saving money for a car. You might even be saving money to retire early. No matter what your goal is, there is always a reason to save money
Over the past year I’ve made some alterations to how I am saving money and I’m very pleased with the changes I have noticed. I have always been looking for simplicity, and now I think I’ve found it.
This post will not go into any depth about tips on investments or what to do with the money once you have saved it. That’s a topic I will post about later. Instead, this post will be about how to start saving money and my money saving tips.
- Keep a record of your expenses and outgoings: This one is really important. How can you reduce your spending when you don’t know where your money is going? I keep a spreadsheet with broad categories – such as ‘Entertainment’ or ‘Groceries’ – and I update it each month. Then I take a lot and see where my expenses are increasing and where and how I can save money.
- Determine essential spending: You can save money anywhere: food bills, entertainment, home insurance. But sometimes spending money is essential and you have to admit that the price you’re paying doesn’t get any better. Take nappies for example: they’re expensive, but it’s essential my newborn baby has them (top money saving hack: we find the ones on Amazon good, or failing that Aldi (although the ones at Aldi sometimes aren’t a great fit)). People sometimes suggest reusable nappies. We’re not that hardcore yet!
- Reduce your spending: My good friend was complaining that he never has any money. He orders a takeaway at least three times a week for his family. If that’s £60 a week, he’s spending over £3k a year on grease. He’s a nurse and earns about £30k. That’s 10% of his gross salary on takeaway food. You might’ve come here expecting a money saving plan. What’s the point? You’re almost certainly spending too much money on stuff you don’t really need. Extortionate gym membership? Expensive clothes? We don’t do that here. We tell you to stop spending money on things you probably don’t need. That’s our simple saving hack.
- Increase your income: think of your personal finances as a business. You have expenses and you have income. The difference between the two is either a profit or a loss. To make a profit, a business will look to reduce expenses and increase earnings. You should do the same and balance the books. I’ll explore how to increase your income in another post, but some quick tips for now: ask your boss for a payrise, develop new skills and get a side hustle, look for a new job which pays more.
- Automate your savings and pay yourself first: each month after I get paid, an amount goes straight from my current account to my ISA. This is the minimum that I’ll let myself save. Usually I top this up at the end of the month when I’ve worked out what hasn’t been spent. I want to forget about my savings and investments and make the process as simple as possible.
- Ignore others: this is my motto. The Ferrari my neighbour drives? I would bet my ISA that it was bought on finance. The holiday that my friend took to Thailand? That was bought on a loan. I’m happy with my holidays in the UK and my cheap hatchback. My priority is to retire early.
- Set short-term and long-term goals: I don’t judge people here. You might be saving for a new handbag or a new car. It doesn’t matter. What’s important is that you are realistic about your savings. It helps me to set a short-term saving goal. 25% of your salary a year is a good saving goal. That’s achievable for a lot of people and would put you in a really good position down the road. Long-term goals are a good idea too. Set your sites on something and go for it.
As you can see, saving should be simple. That’s not to say that it isn’t difficult. I often have to physically stop myself from buying things that I don’t need. Right now I’ve taken a break from looking at motorcycles I’d like to buy to write this blog post. Everyone is tempted to splurge out at some point, but try not to cave in and always remember your goals.
People are often deterred from saving, as they feel they didn’t start early enough. It’s easy to get caught up in all the hype about Warren Buffett buying his first stocks when he was eleven. But remember point six above: ignore everyone else.
I am against extreme frugality. I think people should enjoy comforts during their limited time on earth. Of course, excessive spending can mean you don’t get to spend time on your own terms. It’s a fine balance for sure. But if there is something I want to buy that will bring me genuine pleasure, I see no reason not to buy it.
Let me tell you a story before you go. The other day, I was chatting to a business associate. He had just bought a Rolex on his credit card and was clearly proud of it. It cost him £12,000. Politely I showed an interest. Inside I was screaming.
‘You should get one!’ He said.
In years past, owning a Rolex was something I aspired to. But ironically, now I want the time that the money could buy.
I relayed the story back to my wife when I got home.
I could buy a Rolex and not put it on a credit card. But I choose not to. Now how powerful is that?
What are your money saving tips? Let me know in the comments below!
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***The information contained herein does not constitute financial or other professional advice and is general in nature.
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