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The Best Advice for Saving as Much as You Can
Train yourself not to adapt
We have this idea that if we just make a certain amount of money, we're going to do great. But it doesn't work like that. We find ourselves always adapting our spending and lifestyle to our income.
Be careful with your spending even if you suddenly have more than you need. Don't chase temporary pleasure with money. Continue to live below your means.
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Start a financial independence journey
One of the most challenging aspects to change your finances is getting started.
- You may have an idea.
- You may want to read more.
Set alerts to work on your finances
From the day you start saving, put a reminder on your calendar once a week to work for one hour on your finances in some way. It could include reading, balancing the accounts, optimizing cash flow, researching funds, etc.
There is no right number of times to check on your account. If you feel the urge to make decisions based on the news or market changes, limit how many times you look at your accounts. With experience, you will gain more control.
Dealing with demoralization when saving money
Once you understand where your money is going and what is left for savings, you may feel demoralised. Even though the amount is small in the first few months, you may be surprised by how much your balance grows in six months or a year.
The power of compound interest is what helps accounts grow exponentially and reach your savings goals quicker.
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A Monthly Budget For Your Money
No matter how little or how much money you earn, creating a monthly budget is one of the most important aspects of managing your finances. What gets measured gets managed.
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The Envelope System
The Envelope system is a way to track your variable expenses like food, entertainment, and drinks.
This method, preferably used weekly, allocates a certain amount in each category in labeled envelopes (food, drinks, movies, etc.). Once the envelope is empty, you are done spending in that category.
How to Create a Good Budget
The principles that make a good budget, something you can stick to:
- Being Realistic: Being too strict is a recipe for failure.
- Making Adjustments: A budget is not set in stone, but a fluid thing.
- A Team Sport: If you live with a partner or spouse, you have to agree mutually on how to budget the financials.
- Expect the Unexpected: Keep an emergency fund, ideally 3-6 months of necessary expenses.
- Budgeting the Expected: Certain upcoming expenses need to be budgeted in advance, like property tax, holiday shopping, etc.
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Keep everything as simple as possible
Don’t ever let your “future self”...
Your future self might have more income, but it’s also fairly likely that your future self might have less income and you’ll find yourself in a really bad situation.
Even if your future self is doing well, there are probably going to be other big expenses that you’ll want to deal with at that time, like buying a house.
Focus on...
- Building an emergency fund: set up an automatic weekly or monthly transfer from your checking account to your savings, then leave the savings alone until an emergency appears.
- Eliminating high-interest debt: Set up a simple debt repayment plan by organizing your debts by interest rate, then attempt to make a double payment on whatever debt has the highest interest rate.
- Saving for retirement: It will actually end up being a much smaller burden than you expect, lifted up by the pleasure of knowing that you’re securing your retirement.