Whether it’s for a deposit on a house or that all important capital needed to kick-start your business, you need to cut your spending and start saving.
For most of us saving consistently is a struggle. It’s taken me a while to develop the right mindset, and to stop craving quick returns from my hard earned cash!
Once I shifted how I thought about money, I managed to get rid of a £1,500 overdraft and give myself a comfortable sum in a savings account (which is only going to increase).
Today, I’m going to share with you seven steps to start, and stay on track, with saving so that you can reach your goals.
1. Get yourself in the right mindset
If you’ve never thought about saving you need a paradigm shift in how your brain thinks about money. The way I managed this is: I set myself a financial goal. For some, it may be a house, a new car, or even having some for a rainy day.
First, make a list of your income streams and any expenses you have. Then simply do the maths. How much money are you left with after you have paid all your expenses? Now how much of that money can you save?
Though at first it may not seem a lot each month, work out how much it would give you after a year. Then think about what that could money get you. A car, a deposit for a house, or is it enough get your business idea started?
The purpose of this is to help put things into perspective. If you’re able to save £100 a month you’d have £1,200 after a year. No matter what your goal is, £1,200 can buy a hell of a lot more than 12 £100 purchases.
2. Pay yourself first
This is something I picked up from The Richest Man in Babylon by George Clason where he discussed that the money you earn is yours to keep.
“A part of all you earn is yours to keep. It should be not less than a tenth no matter how little you earn. It can be as much more as you can afford.” – George Clason [Richest Man in Babylon]
Before discovering this concept any attempt I made at saving failed. I saved very little and I found myself dipping into my savings more than I put money away. I was more worried about paying my expenses before I paid myself!
Of course, you need to pay your bills and not get into debt but you need to put yourself first and then work your expenses around you, not the other way round.
The first thing I do on payday? Transfer money to my savings account and the amount left is used for my expenses and whatever else I choose.
A good benchmark to start at is to save 10 per cent of your wages after tax. This is where I started and after a couple of months I was saving 20 per cent, then 30 per cent and now I’m almost saving 50 per cent of my income.
3. Budget to zero
When it comes to saving a set amount each month to reach your final goal you need to save effectively, without allowing debt to catch up to you.
First, take the list you made of all your expenses and decide which of your expenses are needs and wants. Start tackling the “wants” and set a budget for how much you can realistically afford to spend on them.
Expenses like rent, bills, and car insurance are what you call “needs” because you have to pay them to get by and you don’t have much control over these amounts. When creating a budget, you need to ensure that you cater for all your “needs” before your wants.
Your “wants” would be things such as entertainment, online accounts like Netflix, and memberships. These will vary for people but if they prevent you from saving or paying your needs then set a limit on how much you can spend on each.
I use a budget planner for the year that I created myself, which you can also use here.
As you input your income and expenses it automatically calculates how much money you’ll be left with each month and that will be carried over to the next. This is extremely useful as you can plan for anything further in the year.
4. Keep track of your spending
Once you’ve established a budget you need to make sure you’re sticking with it! To do that you need to keep track of everything going out of your bank. Here’s what I do:
- Check your bank balance regularly (I do this almost every day)
- Keep your receipts
- Use a money management app (I use Spending Tracker)
Check your bank balance regularly as it gives a clear indication of overspending.
It’s also good practice in case you receive any unexpected bills or payments, which you could potentially avoid in the future, or it can show you how to adjust your budget accordingly.
Keep your receipts to understand how much you’re spending. I use my receipts to input my outgoings in the money management app that I use, Spending Tracker.
I like it because I can organise my outgoings into categories that show me what I spend most of my money on. Each month I review the ways I can cut down expenses in that category.
If you use the app accurately you can see your exact bank balance throughout the month without having to wait for payments to process on your bank statement.
5. Trim the fat
Steps one to four should give you a good idea on how you’re spending your money. Although you may still be in the black at the end of the month there’s a good possibility that you can save more.
Review your expenses and think about where you could save some extra money, even if it’s only a little.
By reviewing my expenses and trimming the fat, I was able to keep saving more, which led to me be able to save 50 per cent of my income. Here are the “phat trims” that helped me save the most:
- Bringing lunch from home
- Cancelling subscriptions I didn’t fully utilise e.g. Netflix
- Stop buying snack food when away from home
- Socialising less and using the extra time to be more productive
- Sharing lifts to work with colleagues
By reviewing your monthly expenses and looking for ways to reduce them, you’ll reach your financial goal in no time at all.
6. Use cash
In a time of contactless payments, debit and credit cards, and “one-click payments” it’s far too easy to spend money. Buying a few things on your card here and there adds up.
When I use my card, paying for things is so easy I lose track of my spending and ruin my budget. So, I simply just started using cash.
I have a set amount that I’m allowed to spend each week on personal spending such as eating out, drinks with friends etc.
Let’s say you’ve budgeted £40 a week for “entertainment”. Withdraw £40 from the bank and leave your bank card at home.
Spend your cash on drinks, pizza, whatever and once it’s gone, it’s gone until next week
If you only spend £20 one week then do one of two things either; put the remaining £20 in your savings, or add it to your next week’s budget. This will allow you to build up your budget if you have plans one week that are going to be costly.
7. Reward yourself
I like to have a good time at the weekend and this used to be the main problem that got in the way of my savings. I thought that saving money meant that I wasn’t able to have as much fun, but I couldn’t be more wrong.
Admittedly I don’t socialise every weekend anymore (which is good not only on my wallet but also my health) but I still have fun. Watching my spending and saving money has enabled me to do more meaningful activities compared to when I was just wasting my money every weekend.
Since I’ve started saving I reward myself with:
- Traveling to visit old friends and family
- Having days out in neighbouring cities
- Buying vinyl (something I wasn’t able to do often)
- Going to the cinema
- Having a night in and getting a takeout
Although these are not all “meaningful” rewards, I used to not be able to do these very often. For me, buying vinyl is something I enjoy but rarely got the chance to do due to my financial situation, so now I consider it as a reward for my saving.
It’s important to see a benefit to help keep you in the right mindset. Like most things in life; if you hate doing it you’ll stop, and saving is no different.
Reward yourself every now and then but stay within your means. Do something that you wouldn’t normally do because of lack of money, without busting your budget.
For example, in the last week of October (when I used to be down to my last £50) I drove over 200 miles to see a friend for a few days. Although this didn’t necessarily cost a great deal I was still able to see an old friend and experience meeting new people in a city I’ve never visited.
7 steps to spectacular savings
These are some the tips that I’ve picked up since I’ve started saving money and I hope they will help you the same they helped me. Here’s a quick roundup of those steps:
- Change your mindset: Think about what you’ll want in the next year, and in the future. Look at how much you’ll need to save in order to achieve that.
- Pay yourself first: Decide on a set amount you’re going to save at the beginning of each month and use the rest on expenses. Aim to save at least 10 per cent of your income.
- Budget to zero: Establish a budget and stick to it. Tackle your “wants” by reducing these outgoings to save more money.
- Keep track of your spending: Regularly check your bank balance, keep receipts and use money management apps to prevent overspending.
- Trim the fat: Review your spending and look at ways to reduce costs, no matter how little or large. Think about what you need and what you can live without.
- Use cash: To prevent overspending budget yourself each week and withdraw it from the bank. Leave your bank card at home and once you’ve spent the cash you can’t spend anymore till the next week.
- Reward yourself: Remind yourself of the benefit of saving and treat yourself to little rewards. These should be things you don’t often do or buy to give yourself a “well done” on all your saving.
If my seven steps have helped you please share this article with a friend who will find this useful.