One of the best ways to gain more wealth and build a large bank account is by saving more money.
There are basically only 2 ways for money to flow in your life:
1. You earn money (money goes in)
2. You spend money (money goes out)
I call it the wealth equation.
It’s the most simple equation in the world!
Either money goes in your bank account, or it goes out. Look at it this way – and I promise that half of the complicated explanations on saving money will be gone.
Now as our goal is simplified – we have 2 ways to make more money.
1. Earn more money
2. Spend less money
This again seems like an easy concept, but we need to examine it carefully. Most of us only look at how to maximize our earnings, and neglect the whole aspect of saving and preserving wealth.
Before I go on, I believe you should always be in an expanding mentality, and not in a scarcity mentality.
That being said, if you fail to manage your wealth it probably won’t manage itself. Over time if you don’t make saving and preserving wealth a priority – you might find so much of your hard earned wealth has evaporated to thin air.
Table of Contents
The simple wealth equation – Earn MORE , Spend LESS
The problem with the wealth equation
As much as we should always be on the quest to earn more money, and gaining a higher salary\selling more, etc . We cant always control that side of the equation.
Saving and spending is the only side of the wealth equation we can have the most control over.
We can make conscious choices of what to buy, how much to spend and what a life we want to lead.
It might not feel easier for you to save your money rather than earn more. But it is the smartest route to growing your wealth, in a passive and simple way.
Once you make saving a habit, it becomes a second nature. You need to understand that the media and commercials work aggressively 24\7 to squeeze every penny out of your bank account. I believe once you understand that you will value your hard earned money much more highly.
That alone can help motivate you to save more money, rather than spending on unnecessary things.
Identify your goals for saving money
Before we begin with ways to actually save more, you need to identify your motivation to do it. Its hard to save money with all the temptations in life. Even more so without a goal or idea for what you will do with that money.
I have written for you some goals that might be worth pursuing –
- Buying a house – a big one for many people.
- Having an emergency fund, Just in case.
- Saving for medical care, again , just in case.
- Going on a trip to a special place
- Getting formal education
- Getting married –( I always suggest arranging an affordable wedding rather than a big and expensive one. Nevertheless weddings cost quite a bit)
- Closing debt
- Investing your money in stocks, trust funds and so on
- Saving money for retirement
- Saving money for kids education
- Buying a car – (note on this one – a car is a depreciating asset so I always recommend buying an affordable car and preferably a second hand car.)
These are some wide general goals a lot of people have, including me, and you can feel free to add any goal that suits you.
The most important thing is that you have a clear view for why you are saving. There is no wrong reason as long as you have one.
The *how* will come much more easily this way, and make saving more money easier.
So, besides earning more money – how can we make sure we spend out less and save much more?
Setting clear goals for saving will help motivate you in the saving process
Here are a few tips on how to save more money
I assembled a list of things you can start using right away to increase your savings and cut expenses. So let’s dive in right into it!
1. Check your subscriptions – nowadays almost every service or product out there uses a subscription model. Services like Netflix, Spotify, adobe cloud, cable tv and so on, are all using a monthly\yearly payment model.
Each month they charge you a small amount in exchange for their service. The problem is when you start gathering many of those services, and that tends to add up. You may initially think. – “well, its just a few bucks for each service “.
That’s exactly what those services want you to think and all of a sudden you are paying hundreds of dollars a month for services you barely use.
I recommend setting a regular time – once every 3 months to go over all of your subscription services.
When you go over them make a list with 3 categories –
1. Must have
2. Sometimes useful
For example- if you love music and use spotify every day, its on the must have category. Then you have Netflix which you use once in a while, but its still nice to have – keep it on “sometimes useful”. Check your “sometimes useful” – if you keep it – great.
Make sure in 3 months when you check this list if you still have a need for the sometimes useful category. Now for the rest of the items- for example if you have a subscription to a magazine you never read – it goes to the “useless” category, and you schedule to remove it as soon as possible.
This way you will save tons of money over time. Just one subscription of 20usd a month is 240 usd a year, and 3 of them will get you 720 usd a year. Not bad if you ask me!
2. Housing costs – One of the biggest expenses in life that goes out monthly is housing costs. Starting from rent money\mortgage , to electricity and water payments, gas bills, housing taxes and more.
I do want to say that the wiggle room for this area is much smaller for most people. Anyway, there are still small things you can do to save more money, and very easily.
First of all you if you are living on rent, try making good research of the prices in the area. Even a few hundred dollars difference a month will help you save a lot of money. After you got that covered, take a look at your monthly bills.
In regards to electricity I recommend only buying electric products that are considered environmentally friendly and have a higher electricity rating. It will save lots of electricity and keep your bank account and the earth healthy.
Another area to look at is to learn how to fix and take care of things around the house yourself. It will help you become more independent and self efficient in your house and also avoid expensive repairments.
3. Don’t buy brands (at least not all the time)- brands, as much as we all love them are expensive. Much more expensive than buying generic items. For example , an iphone is about 3 times more expensive than a generic phone.
Sport items from a brand like nike is much more expensive than regular clothes. And in larger scales, buying a BMW car is a lot more expensive than a regular Toyota. Of course, sometimes we love a brand, and we really want it.
Psychologically brands carry lots of things that appeal to us. They carry status, comfort and prestige with them. They are well known. And holding a branded iphone might feel nicer than a xiaomi generic phone.
So what should you do? It all depends in how much you are willing to sacrifice for that branded items. The best way to do it is to choose a few items you will not compromise on, and buy all the rest unbranded.
The biggest tip I can give you in this section, is that for food and basic products its almost always better to buy unbranded. The general law is price for value and it will be explained on the next point.
4. Buy quality over quantity – buying higher quality items is much better than buying quantity of low quality items. When you buy items that are low quality you are going to lose twice. The first time is that you are probably not going to enjoy the product you buy the same way as a higher quality product.
The second time is that the high quality product will probably last longer. Something you need to notice is, that high quality doesn’t mean the most expensive. Lets say you are going to buy a great computer for work purpose.
Some brands might offer you a very cheap offer, with very promising results. Usually if it sounds questionable , then it is. Learn to identify brands that offer you a maxed out plan between quality and quantity.
Maybe you can get 5 items for 10$ , but you only need 2 . It might be worth to buy 2 items in 8$ instead. This is not a “hard law” , but a general guideline to use when in doubt.
5. Restaurants and eating out – Eating out is one of the most enjoyable activities people pursue.
I personally love eating out. I use this time to connect with family and friends , and enjoy special meals I don’t get to eat everyday. This tip is for those who constantly find themselves eating out, even when they didn’t want to.
A lot of people eat out when they have a break at work. Sometimes you don’t have any alternative and it’s the only option to take. That’s fine. I do recommend though to prepare meals in advance for these cases, and save this money for better use.
In addition to that, you might want to set a limit on your eating out per week so you can stay on track. Eating out can get very expensive, and is a major expense for a lot of people.
6. Make a budget – In order to maximize your monthly savings, and save more money – you need a budget. Some people don’t like to live with a budget and work just fine without it.
That can work for a while, but as expenses grow, you might stop keeping track on them. The best way to handle your monthly savings is to plan ahead and make a clear budget for the month. For example, if you earn 5000$ a month, write down how much will go for the regular expenses ahead.
Lets say you spend
- 1500$ on rent
- 600$ on your car
- 800$ on groceries
- 400$ on bills
- 500$ going out
That keeps you with 1200$ , which you can easily save in advance. You can also make tweaks to your budget as you go. I recommend starting the month with moving a set sum to your savings account as the best strategy.
We tend to spend most of what we earn. If you condition yourself to do this you will see great results and you will manage to save much more over time.
7. Create Saving goals – let’s admit it. saving can be a hard and boring thing to do. Saving isn’t easy. In fact , if it was – you wouldn’t even be reading this article in the first place.
Sometimes we might start saving, we do it in a great way but then we just forget why we started and start ruining the process. We start spending more, buying more things, and all of a sudden we save less and less. Eventually we might start spending all the hard money we did manage to save! What a mess.
One way to help you keep on track is to create a goal for your savings and creating a name for it in the account. It could be anything – we went through some great goals in the beginning of the article.
To make this strategy work for you – you set a general purpose for the saving, set an amount, and you get on track until you hit that goal. As soon as you get that goal you need to already have the next goal in place, so that you keep in that same path. Eventually saving will become a second nature for you.
8. Celebrate landmarks- Let’s say you planned your budget. You save each month in a consistent way, and you manage to reach your saving goals. Great for you! Now what? Now you go and treat yourself in a great way! Maybe you go out to the wonderful vacation you are dreaming of.
Or have a pleasant evening in a nice restaurant. The most important thing is to make saving an enjoyable process and gratify yourself for making it. After all if you just keep running without making a small notion of your success , you wont notice that you did succeed in your wonderful goals.
Some things to watch out for
Managing debt – one of the main things that can really harm your way to wealth in life is debt. In that case I recommend you do everything possible to get yourself out of it. Maybe you can get a loan to pay out in better terms, work another job or get help from family.
Whatever you do though, try as hard as you can not to get in debt. When you are in debt the bank takes interest on that debt, making the situation worse. Usually loans have better interest and are easier to pay back , I recommend consulting your bank in these kind of situations.
Managing loans – On that note, I recommend getting the best loan you can from your bank. In case you need a loan , for school , buying a house or anything else – try looking for the best interest you can find.
Even a few % saved will be a long way for your savings account over time. Remember, it’s a marathon not a sprint. Every dollar you can save today brings you much closer to financial freedom.
Breaking saving habits over bad mood- I know this point is a hard one, and we can’t always manage to control our emotions. Nevertheless, when you feel like spending money you didn’t intend to because of emotions stop for a moment.
Observe your behaviour without judgment, and try not to make harsh decisions. After you relax a bit, ask yourself – ” is this expense going to make me happier?” or is it just going to keep you in a bad feedback loop?
More often than not you will see that our impulses come and go like waves, and though we might not be able to control them – we can learn to ride them out until they go away.
If you did make a bad decision eventually, don’t judge yourself to harshly. We all make mistakes and the best thing to do about it is learn from it and move on smarter.
The first step in building wealth and saving more money is eliminating finnancial obstacles
To sum things up
Saving more money is onew of the surest ways to getting wealthy and building a secure financial life. I do believe that saving your money is the first step to building capital, before anything else. Without saving you cannot invest, buy assets to grow your funds, and get ahead in life.
But saving isn’t the end of growing wealth. Its just the first step as I said, and I invite you to keep on reading my blog on how to get the money you worked so hard to save , to start working for you.
Saving money should be a fun process , and if you are not enjoying it – try to understand why. If you are preventing yourself from getting things you want and need , or you are avoiding nice experiences because you are trying to save more – that isn’t saving. Its suffering!
So don’t take everything stated on this article to the extreme. Try to master 2-3 points first. Find the places that are easy for you to save money and cutting expenses. Make use of smart saving.
Maybe this month you can save less, but next month you can make it up . the wealthiest people are adapters – they don’t give up, and they pursue their goals actively. Now go out there and save the best you can!
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I would love to hear from you in the comments about your thoughts and your saving plans.