Many people hold on to the notion that money doesn’t buy happiness. Sure, true happiness may not come from having more money, but not having enough money can add to one’s stress, making it harder to live a happy life. Indeed, everyone would much rather have money they don’t need over having too little to make ends meet.
Most individuals think that finding a higher-paying job or having a second income source is the only way to get them out of financial insecurity. But there’s a better, more practical method to become financially secure: Managing your money.
Personal financial management, especially cutting your unnecessary expenditures and saving money, will allow you to live a prosperous life now and after retirement. To that end, here are some straightforward tips for you to save money.
Make a Budget
It’s a good idea to start with a solid game plan. Take from a week up to a month and write down all your expenses. These include mortgage, rent, transport, utilities, food, and any other bills or subscriptions. Note down the significant costs but don’t forget the smaller ones. Record every dime you spent in that period. Just the act of writing down your expenses will give you a strong sense of self-accountability and help you spend less.
Second, organize these costs in descending order of importance in one column. And in the other column, give it a score between 0 and 2, where 0 means you don’t need it and 1 is essential but swappable with a cheaper alternative. 2 a necessary expense.
Next, eliminate as many zeros from the list as possible and replace those with more economical options. Write down the budget that makes sense for you. As a general rule of thumb, allocate 1/3rd of your income to savings, 1/3rd to rent, and the final third to all other expenses.
Pay Off Your Debt
If you did the last step, you’d find that debt consumes a large chunk of your income. You can avoid some debt by not living beyond your means. For example, you can keep as few credit cards as possible, keep track of your spending, and pay the dues on time.
A bad credit score will raise your insurance premiums as well as loan and credit card interest rates. Similarly, don’t buy a house on a mortgage that will take you a lifetime to pay off. It’s likely not worth it.
But, some debt may be unavoidable, such as student loans. Many people resign themselves to paying these for life and often fail to do so. But it is possible if you commit to it. Have a dedicated timeline baked into your budget that helps you pay these off in the shortest time possible, thus avoiding enormous interest rates.
Don’t Overpay Taxes
Taxation laws are reasonably complex, and as a result, many people end up paying way more than they should. Make sure to do your research to know all your entitled deductions and credits.
Deductions are expenditures you can subtract from your income before it is taxed. These include student loan and mortgage interests, certain medical expenses, and any money you put in your 401(k) and Roth IRA. By decreasing your taxable income, you could literally save thousands of dollars annually.
On the other hand, tax credits are subtractions from your tax bill that you can ask for if they apply to you. If one or more of these, such as the child and dependent care tax credit, are applicable, you could cut your tax bill down – even to zero. In fact, you may even get some money back, depending on the type of credit.
Reduce Your Shopping Expenses
I’ll go out on a limb and say you already knew this one. But here are some practical ways in which you can effectively get rid of unnecessary shopping expenses.
- Always look out for discounts and deals if you want to buy something and shop during big sales, such as Black Friday.
- Do not use sales as an excuse to buy something. Instead, buy whatever you already wanted during sales.
- Give yourself at least a week before you buy something you don’t need immediately. Chances are your impulse to buy that thing will fade.
- Don’t shop at big-name brands. Instead, try generic.
- A 600-dollar phone that lasts you 4 years is more economical than a 300-dollar phone that only lasts one year. Shop for value over time and not for the price.
Cancel Subscriptions You Don’t Use
Consumers may not be willing to splurge lump sums of cash on services but are more inclined to part with small sums over time. That’s because, in this manner, people lose track of how much they spend and often end up overpaying. Today’s big companies like Spotify, Apple, Netflix, Amazon, and the likes exploit this human weakness to make you sign up for subscriptions you don’t need.
When making your budget, ask yourself, “Do I really need three video streaming services, or just one? Can I avail a family plan instead of individual subscriptions? Is there any other discount option that I can use?”
Similarly, you could cancel that gym membership if all you do is run on a treadmill. You could run in the park instead. Also, don’t pay for high-speed broadband if you only need it for iMessage or WhatsApp. And let’s be honest here, do you need that cable TV? Didn’t think so!
Eat at Home
Preoccupied with the hustle-bustle of life, many of us end up eating out rather than preparing food at home. By eating exclusively home-cooked meals, you can drastically cut down on your spending. And you don’t even have to cook every day. You could cook food in bulk and store it for later use.
You can even make a habit of eating all your meals at home or pack lunch for work if needed. To save even more money, buy groceries in bulk from cheaper stores, and keep an eye out for discounts.
Do it Yourself!
Need a wall painted? Maybe a shelf installed? Or how about a leaky faucet? Thanks to the wealth of knowledge available on the internet, you can now learn and perform the most common household tasks by yourself.
By taking the DIY approach, you don’t need to hire professionals for hundreds of dollars every time the need arises. While it may seem hard at first, but remember that you’ll retain your new skill for life and can use it whenever the need arises.
[…] it is a good idea to clearly define your annual budget. Rein in the heavy-hitting expenses and always assign a permanent share of your income to your retirement […]