The 4 smartest ways to save money
When it comes to growing your wealth, it’s not about how much you earn but how much you save.
If you’re really serious about financial independence or a better financial future, you’ll need to be an effective and efficient saver. One way or another.
In this post I show you how you can turbocharge your savings by focusing on the 4 smartest ways to save money.
They have delivered tremendous results for me and are the main reason why I’ve been able to build a substantial investment portfolio.
If you apply them, i’m confident that they’ll deliver incredible results for you too.
1) Focus on your biggest expenses
You don’t need to implement a budget to know that housing is a big expense for you, that your car costs you a boatload, or should I say a carload, and that you spend a substantial amount on food to sustain yourself every month.
No daily spreadsheet or budget app on your phone needed thank you very much.
But let’s get a bit more scientific here for a minute. The largest proportion of household expenditures according to Eurostat (for the EU) and the U.S. Bureau of Statistics (for the US), relate to housing (incl. utilities), transportation and food:
The biggest expense categories often provide the greatest opportunities for cutting down your spending. Start by asking yourself questions along these lines:
- Could I get a better deal on rent somewhere else? Any cheaper areas with great transport links?
- Can I renegotiate my bills? Can I switch to other providers that provide more value?
- If I move to the more expensive city center and give up my car, will this cost me less overall?
- How much does my car cost me compared to using a ride-hailing company everywhere and renting a car when I need to get out of town?
- Which supermarket near me offers the best value?
- What if I cook large portions of food whenever I cook and freeze leftovers for another day?
- Which foods make no difference if I buy the cheaper store brand? Where can I buy non perishables in bulk and for discounts?
You get the idea. Look at how you could optimize on your biggest expenses and save the difference. A few shrewd moves in these categories and you’ll already be well on your way to turbocharging your savings.
Seek out these opportunities. Don’t procrastinate, take action and get it over with. Then, time to collect the benefits for the long term.
2) Save in the areas that don’t truly make you happy
- Travelling
- Fashion
- Electronics and gadgets
- Daily indulgences
- Eating well and eating out
- Night life
- Social life
- Entertainment
- Convenience (cleaning, laundry, take-out, etc.)
- Personal transport
Which of these bring you the most joy? Which make life that much better? How would you rank them?
I’ll go first.
I love travelling and exploring new places. I’m definitely a foodie that likes to eat well and discover new restaurants in town.
Oh and I love socializing and going out for drinks with people I care about. Hmm, what else? Ah yes, the occasional cultural event for sure!
The rest? Meh.
That doesn’t mean I overdo it and skimp to the max. It’s just that i’m more conscious when spending in these categories because they don’t bring me as much happiness as the others.
OK now your turn, take some time to think deeper about this list.
Then, try to go one step deeper and ask yourself “what do I enjoy specifically about each category?”.
Let’s say you love eating out, do you love it as much during the week for lunch with your colleagues? Do you really enjoy your dessert as much as your main? Do you really appreciate that expensive bottle of wine or can you barely tell the difference?
You see what i’m trying to get at?
If you’re going to cut back on something, it might as well be in the areas that don’t truly make you happy. And it pays to know which ones these are.
As a reward for cutting back, don’t feel so guilty on spending on the things your truly enjoy. Just be reasonable because if you’re not then you may find that these areas will stop bringing as much joy to you after a while.
3) Prioritize savings that won’t cost you too much time
Have you ever gone to different supermarkets for different groceries so you could cherry pick the cheapest items in each location? If not, then good for you! And unless you’re on an incredibly tight budget, there’s no need to start.
If you have, how much did that save you? a couple of euros or dollars a week? How much extra time did it take? 30 min? an hour? And you need to do this every few days or every week?
This type of behavior is counter productive. I’ve been there and I congratulate you on your dedication. But unfortunately, you’re saving hard not smart. It takes a lot of time and you need to take repetitive actions to save.
Isn’t it much better to just identify the supermarket closest to you that provides the best value overall and use that one for perishable items. Then once a month or once a quarter go to a wholesaler to buy non-perishable goods in bulk and at a big discount?
Can you see which approach provides the biggest savings versus your time investment?
The trick here is to treat it like a bit of a business game.
Write down a few of your best saving ideas and then start with the easiest and obvious quick-wins. Prioritize the things which you can address once, and that bring results for the long term.
Do you pay recurring fees for services you never use? That’s the easiest of all. Two minutes to cancel and you spend less money each month for the foreseeable future, effortlessly.
Once you get these easy quick-wins out of the way, you can start going for those ideas which would take quite a bit of upfront investment but that can generate substantial savings in the future.
We touched on some of these, such as moving to a cheaper place, in the “focus on your biggest expenses” section earlier.
Instead of tiring yourself mentally and physically optimizing individual expenses on a daily basis, it’s much better to invest in one-off actions that result in long term savings.
The bonus is that you won’t have to worry about it again for a while. You can then use the extra time to recharge or to focus on growing your income!
4) Pay yourself first
If you asked me to choose among the 4 smartest ways of saving money, I would not hesitate to respond with “pay yourself first”.
Paying yourself first essentially means that the first thing you do when your pay check lands in your checking account each month, is transfer a pre-determined portion to your savings account.
The best part is that it takes no additional effort. Instead of saving at the end of the month with what’s left over, you save it at the beginning of the month before you’ve had the chance to spend it.
Such a tiny shift in the timing will, on its own, transform your saving potential. Guaranteed.
How much should you pay yourself first?
Well, as with many financial questions, it depends.
One approach I suggest is to save enough at the beginning of the month to force you to be a bit more careful with your spending towards the end of the month so as to not run out of cash.
Kind of like the living paycheck to paycheck lifestyle, but you’ve already payed yourself first! So a lot less stress and your priorities taken care of.