Simple “hacks” won’t get you to financial freedom. You can “hack” your way to more savings, until you no longer implement that specific hack. If you haven’t established the processes, systems, or habits to take over for these “hacks”, then all the work you put in will be lost moving forward. To truly be able to start saving more money, you need to address the habits you currently have around the topic. Below are three items that you can begin incorporating into your day to day life right away that will help you begin to save more.
#1 – Track your spending (every dollar!) for at least a month
To be able to save more money, you need to evaluate your current spending needs, wants, and waste. If you don’t know where your money
is going, how will you be able to learn where you can cut back and save? To do this, I recommend, for at least once month, tracking every dollar that you spend and categorizing it. This way, you can easily see the areas that you are both frugal and a little loose with the wallet. At this stage, I would avoid using an online automated service, such as Mint or Personal Capital, since it is easier for some transactions to slip through your review. The point of this exercise is to bring each transaction into your mind again as you record it. I recommend using a simple spreadsheet to do this. I have created a simple Transaction Register via Google Docs that you can download for free to help track your spending.
During this time-frame, look for areas that you are spending more than you thought. Are you spending money here habitually? Do you really need everything you are currently buying? Can you cut back on some items and save the money instead? These are the types of questions you want to ask yourself as you review each transaction and the transactions in aggregate at the end of the month.
Once you become comfortable with where your money is going, you can use a service such as Mint, Personal Capital or You Need a Budget (YNAB) to continue monitoring your spending/budget to make sure things don’t get out of control. You can continue to use the manual system, however, if you feel that this gives you the best overall feel for where your money is going. This idea is about being attention to what you spend so start with the manual recording and then move to a system that remains the most beneficial to keep you on track. Continue to manually track your spending at least once or twice a year (or whenever you feel like things are getting a little out of whack) so you continue to be aware of where your money is going. The take-away here is that you can’t save more money if you don’t know where it is going!
#2 – Realize the savings you saved
You always hear people say things like “I used coupons this week and saved [insert dollar amount] on my groceries!” or “See that new [insert item], you wouldn’t believe the money I saved on it”. But did they really save anything? They may have gotten money off the item, but they didn’t necessarily save it. If they didn’t use it to pay off debt or move it to a savings or investment account, they merely deferred that money until it is used on another purchase in the near future.
That is why one of the best ways to start saving more money is to actually save the money you save. Confused yet? Every week when my wife goes grocery shopping, I review the receipt to find out how much money we saved through the usage of coupons. After finding out how much we saved, I request the app Digit* via a text message to save that amount for me. This way, we are actually removing the money from our checking account and moving it to savings, thus realizing the savings.
You don’t actually save money unless you do something with it. You need to get it out of your checking account, otherwise it remains there to be spent. We all know that if we give ourselves a little extra to spend, it will be spent. I love Digit because it makes it easy to save this amount, but you can use just a simple transfer to a savings account, or keep a record of your miscellaneous savings amounts until you get to a larger dollar amount and transfer it to an investment account. The takeaway is that if you want to save more, you can easily start by savings the money you save!
*Digit is an automated service that analyzes your spending patterns within your checking account to find money to save that you won’t miss. It works entirely through text messages, which allows you to text an amount to save whenever you want. If you are interested or want to find out more, check it out at Digit.co (Note: This is an affiliate link. If you sign up for the service using this link, you will help out the site but still get to use the same free product)
#3 – Look for “Triggers” That Lead to Spending Money and Swap the Activity
Do you regularly find yourself needing an afternoon pick me up and end up at the local coffee shop? What about a rough day at work and end up online shopping or heading out to the bar with friends for the night? By finding the things that trigger money spending routines, you can work towards substituting a new, more cost effective routine to replace it.
In the excellent book, “The Power of Habit”, Charles Duhigg describes the process of habits as a cue, leading to a routine, that provides some sort of reward. So, in our example above, when you hit your afternoon valley, needing an energy boost and run out to grab a coffee, your brain begins to condition itself to always want that routine to achieve the reward of added energy. Having routines that regularly lead to you spending money, can have a negative impact on your ability to save. Luckily, there are things that can be done to morph our habits to be more beneficial.
Duhigg goes on to say in the book that “if you use the same cue, and provide the same reward, you can shift the routine and change the habit. Almost any behavior can be transformed if the cue and reward stay the same.”
This is great news for us as it shows that we can change our routines to be more beneficial to our lives, whether it is finding ways to save more or stopping a bad habit, as long as we continue to use the same cue and receive the same reward. So instead of running to the coffee shop on a daily basis, take a quick 10-15 minute walk outside or eat an apple or banana. You can still obtain the same reward of gaining an afternoon energy increase, but decrease your spending, and realize those savings from your decreased spending! There are numerous things that can be substituted in place of habits that cost us money. We just need to realize the cues and recognize the rewards to find an adequate substitute. If you do these things, you will find some extra room in your monthly spending to put aside as savings to help reach your financial goals!
So there you go, three simple items that you can begin incorporating today that will help you save more money. You may already be doing some of these items, but it is safe to say that everyone can look at what they are currently doing, and find something that they can do within these ideas that will lead to saving more. Remember, every little bit saved gets you one step closer to your goals.