On the journey to financial independence or building wealth, there are only 2 main ways: either you increase your income, or reduce your spending and save more.
There are not many shortcuts around it unless you get into some get rich scheme, or win some lottery, or your crypto coins explode overnight.
Increasing income is the most powerful way, yet it takes time and is not easy for anyone.
However, cutting back spending and save more are definitely something all of us can control. I am not telling you to cut back most of your expenses and get thrifty, though that is also one option. What I am trying to tell you is that, be mindful of what you spend, and you will find room to cut back on your biggest expense, or improve your spending pattern.
Here are five ways that you can use to spend less, save more, and make your bank account, investment account “fatter”
Consolidate all credit cards into one
It’s super easy to let your spending out of control when you have multiple credit cards available at hand. You may feel your spending power is very high – several times your monthly salary, and in the heat of the moment, you can spend more than you can afford. It has happened to all of us.
Another reason why we want to use one credit card is to reduce the possibility of missing the bill payment or paying the hefty interest charges, which could easily amount to 25-30% (which is INSANE). Banks make money that way, by leverage on our forgetfulness or our inability to pay in full (note: credit card annual fee is not their main income, rather the interest payment)
Cut back spending on credit cards, spend mostly on your Debit card/cash
Psychologically, as science proves it, it doesn’t feel pain when you pay out with your credit card, but with a Debit card or cash. When you pay out with cash, you can feel money is draining from your own pocket. Thus you have a better sense of how much the good costs you, than just tap your cards on the POS.
Understanding our psychology does help in this case.
Of course, we don’t want to carry so much cash around, if so, use a Debit card. You will become more mindful when you make the purchase and the plus side is that you don’t have to worry about paying your credit card bill or miss the payment. It’s a relief and freedom at the same time.
Think twice, or thrice before buying high-value stuff
Everyone will have a different definition of high-value stuff. For some it would be a TV, headphones, for others it would be a MacPro, or a camera or a car. There is no single answer for this as it depends largely on each person’s financial situation.
However big-ticket purchases can trigger some debts, be it loans from a credit card, or mortgages from banks. That is why it’s very important to pause and contemplate this purchase.
There are some questions you can use to guide you in this case:
- Does this item belong to the NEED or WANT category?
- If I don’t buy it now, what are the cost/sacrifice I would have to make?
- Is there other alternative with similar functions which has lower price tag?
- Would this item be listed on sale soon? Can I wait?
- Is this the best deal I can get? Have I compared the prices from other vendors?
- If I buy this one now, do I have to compromise other needs just to afford it?
- What are the values I can get from this item?
Find ways to cut back on your biggest expenses
On average, the biggest expenses like rent, grocery, or transportation would account for around 60-70% of our total income. A simple way (but not too easy) is to reduce these big-ticket expenses.
You may want to consider:
-Do I need to live in a big condo or smaller condo would be nice as well?
-Do I need to have a car or I can use public transportation / Uber ?
-How much I am spending for core grocery items and how much for snack, dining out etc.? What expenses can I cut? How much would it save me if I only cook at home and eat out once / twice a month?
By cutting on big ticket expenses, you will find yourself in a better financial situation quicker than trying to save smaller value items (of course every penny matters), but I’d say these are low-hanging fruits that you don’t want to miss.
Review recurring expense (membership, subscription)
It is very easy to lose track of the number of subscriptions and membership you have over the year (at the end of the day, that’s how those businesses make recurring revenue right). I know someone who didn’t know he has Netflix charged on this credit card every month. Another doesn’t know how much monthly fee she has to pay for her debit card until she finds out.
A simple tip is to review the bank statement/credit card regularly and catch any unwanted membership or subscription. Also, ask yourself if you really need this or is there any substitute? More often than not, you will be likely to find yourself a better alternative than the current ones you have.
The above 5 ways outlines are not the only ways to help you spend less and save more. In the meantime while you are figuring out how to make more money, perhaps applying this method can help you increase your saving rate and give you encouragement.
I hope you find this post useful and would love to hear if you are using other methods to control your budget and save more.
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