Tuesday, January 31, 2012

Accumulate more savings in 4 steps

The key to accumulating more savings isn’t only to spend less; it’s to spend less without sacrificing your quality of life. 

Saving more doesn't mean that you have to stop having fun, or stop shopping, or stop eating out.  Cut costs on the things that you don't care about.  This gives you more money to spend on things that you do care about. These are the 4 main changes I did that you should also consider:

1. Pay yourself first  
Your paycheck comes in: 10% to 20% of it is automatically transferred into your savings account.  Done deal.  No need to manually move around money.  It’s great if you want to save more than 20% of your income.  But as a starting point, save 10% to 20% of your income no matter what.  For every $10 that you make, $1 to $2 of it is going into your savings account, no questions asked.  If you're spending every last dollar that you make, you're going no where.  If you can't afford to save 20% of your income, you need to drastically reduce your spending.

2. Track your expenses
Then you will get an idea of where your money is going and how much it's costing you.  This will also eventually help you gauge how much you are saving.  When I first did this, I found some shocking results:

  • I was spending $75 a month on dry cleaning bills.  I would wear a dress shirt only once, whether for work or even just to go out and grab dinner, and then the shirt would go off to the cleaner

  • I was spending an average of $900 a month eating out.  5 days a week I'd go out to get lunch and dinner.  Sometimes with co-workers, sometimes just by myself.  Then on the weekends, I'd go out to eat at more expensive restaurants.

  • I was driving my gas-guzzling vehicle on long trips and driving it aggressively.  My fuel expenses came out to an average of $307 a month.

  • I didn't bother negotiating my bills.  I just paid them when I received them.  I even paid for services I didn't even use, like Direct TV

2.  Cut costs when possible
Finding ways to save is important, but make sure to keep your intentions realistic.  This means don't get too extreme with your cost cutting at first.  Start small and then slowly get more drastic in your expense slashing.  These are some of the ways that I’ve been able to ruthlessly cut my costs:

  • At first I started wearing dress shirts more than once, especially shirts I had only worn for less than a few hours.  This effectively cut my dry cleaning expenses by 30-50%.  Later, I purchased a steamer for $130 and decided to steam all of my shirts myself.  This cut my dry cleaning expenses to $0, saving me $840 a year.

  • I love eating out.  I like trying new restaurants and fancy foods and enjoy the company of others.  I didn't mess with my desire to eat out with friends on the weekends.  Eating out on the weekends maintains my happiness and quality of life.  I'm not going to give that up. However, I found that I could do without going out during the week to grab lunch by myself.  Eating a packed lunch in the office lunchroom was easy to do.  This saved me the rush of going out to eat during my lunch hour.  This also saved a little bit of gas. Cooking at home turned out to be much cheaper and much healthier.  This cut my eating out expense by $300 a month (saving $3600 a year)

  • I changed my driving habits.  Did you know that the douchebags who are constantly accelerating and braking and swerving around use up much more fuel than someone who drives at a steady pace?  Also, they don't save a significant amount of time either.  Me and the lady take her fuel efficient vehicle on longer drives to optimize on gas savings.  My 4 month average gas expense has been $138, down from my average gas expense over the previous 9 months of $307, saving me an average extra $169 a month ($2028 a year) off my fixed costs.

  • I did some bill negotiations this year.  This one is a lot easier than you think it would be.  I cut internet service bill from $52.99 to $39.99 with one phone call saving me $13 a month ($156 a year).  I cut my AT&T wireless bill by $10 every month with one phone call ($120 a year).  I will teach you how having a 5 minute telephone conversation with customer service can save you hundreds.
  • I cancelled my direct TV service and switched to the Roku 2, saving me $70 a month ($840 a year)
  • I fired my broker who charged $40 a year for account maintenance with funds that had sales loads and switched to Vanguard, which charges $0 a year for account maintenance.  This will save me $40 a year.

  • I just fired my gardener and decided to do my own lawn mowing, saving me $45 a month ($540 a year).

  • I started using coupons at grocery store when appropriate (don't buy something you wouldn't normally buy for the sake of using a coupon you wouldn't normally use).  The trick to using coupons effectively is to hang on to them and not use them right away.  When a store has a sale on that particular item, use the coupon in combination of the sale for maximum savings. Now I’m not looking to be an extreme couponer, but it’s definitely nice to regularly see discounts of 10-20% off my grocery bill.  Also, we go to Costco and buy in bulk when possible.  It doesn’t matter how much you can save off a grocery coupon – for some items, Costco is still cheaper. 

4. Make more money
If you've cut costs ruthlessly every way possible and you still don't have enough savings, it's time to increase your income.  This is a tough one for some people.  Many people think that their Monday to Friday 8am to 5pm job is their only source of income.  There’s other ways to make money on the side.  This one needs a whole article to itself.  One way to maximize your income now is to upgrade your current salary agreement.  Negotiating a salary is not just about your annual income.  There's other factors to consider.  I negotiated a ridiculous contract this past year.  (I have removed my contract perks due to privacy issues)

I've saved thousands of dollars this last year.  I did this by cutting costs on expenditures that weren't necessary and cutting costs that could be easily reduced. This has not only maintained my quality of life, but also fattened my bank account by a large amount.  Who couldn’t use a fatter bank account to improve their quality of life? It's surprisingly easy to reduce your spending without completely depriving yourself of doing the things you love and buying the things you want.  

Put in some effort now, and let the savings accumulate.  What savings goals will you reach for?

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