How to save money!
In my last blog post, I lit a fire under your behinds, cause you gotta save guys!
So the big question is how do you save money?
1. Track your monthly income and expenses
This is the first step to saving money. If you have no idea what your expenses are or total income is, how would you know exactly how much you can save. There are various ways to do this;
Manually on an excel sheet if you’re that type of person. In this case, you would record all your expenses every week starting from July for instance. For efficiency, you can bucket them under categories.
For the other type of people, some of your bank apps have this feature where you can track your expenses. Also, there budgets apps like YNAB that help track all this information!
2. Organize your expenses
The next step is organizing your expenses, another phrase for a budget. I’m not going to say you need to know the exact amount for specific things. If that works for you, GREAT! But for the majority of people, having a category with your expected expenses is the most efficient. Reading Worry-Free Money by Shannon Lee Simmons definitely gave me a different perspective on budgeting and saving. I’ll be using some of my learnings from there to explain this.
Firstly, organize all your unavoidable expenses; these are payments you have to make irrespective of what happens e.g Rent, Hydro, Food etc. These would definitely be different for other people. Once you have all of this, get the total for this and subtract it from your total income.
Let’s use an example to bring this to life. Sarah earns $5,200 monthly, which is paid biweekly. These are her unavoidable expenses;
Sarah's Unavoidable Expenses
Her total expense for the unavoidable category is $3,090 so we have $2110 left to work with!
*I’m using dollars for this example, but please appropriate to whatever currency you’re using
Next, organize, the next most important needs, for me, those are eating out, self-care, and Tithes. Using Sarah’s example, we’re going to have;
Sarah's Negotiable Expenses
This totals to $550 and we have $1560 left which she can possibly save.
All things being equal, Sarah should be able to save $1500 comfortable every month, which is about 28% of her income. This is not a bad savings rate considering the average savings rate in Canada is less than 10%. She can keep this as her savings limit, where the goal is to never save below $1500.
Here are some expense categories you can use in categorizing your expenses
3. Save this in a high-interest saving account (HISA)
Where do you put the money? Not under your bed or pillow but in a High-Interest savings account. It's definitely better to have it in a separate account from your daily spending account.
You can automate this to be taken immediately after you get your income or you can manually move it to the HISA. I find I prefer moving it immediately because the automation is a little slow for me. I want the money out of my account now and in my HISA not in 3 days' time LOL.
You may be thinking, this doesn't apply to me, "I want to achieve a higher saving rate" or "I don't have any money left to save"
Look out for next week's blog post!!!
Additional tips to save money
Always save before you start spending. Using Sarah’s case, the best thing to do is to take out $750 after each payday. If you save after spending, you’ll be saving what is left which will surely be lower than how much you planned to save. There's a science behind that!
Always try to live below your means, don’t “keep up with the Joneses”. You may think you have an idea of what friends or peer’s on the internet level of income is, but you really don’t. You don’t know if someone is a trust fund baby, so focus on yourselves, know your goal and work towards that.
Also, try to avoid lifestyle inflation, your goal should be a higher saving rate, I learnt more about this from reading The psychology of money, I’ll talk more about this soon.
