Having extra money has always been useful for anything, from short term goals like donating to your favorite charity organizations, a holiday, new phone, and new laptop, to long term ones like getting out of debt, having an emergency fund, retirement, you name it. But with rising living costs and relatively stagnant salary with no other source of income, having extra money can only be done through saving money, which is difficult for most of us who struggle to make ends meet.
Basically, to save money, you would have to make sure that your expenses don’t exceed your income. When you have a full-time job and only have one source of income, it’s easy to know how much exactly your income is. The not-so-easy part is to know how much you spend when there are many payments and purchases such as rent/mortgage, utility bills, groceries, transportation, insurance, not to mention urgent and unforeseen expenses like medical consultation, flat tyre, car crash, Myer’s stocktake sale, and whatnot. When you never keep track of your spending, you’ll end up living from payday to payday, which is not a good idea if one day you suddenly lose your job.
Credit card, despite being a helpful and practical method of payment, makes this simple task (of ensuring the expenses are lower than the income) difficult as it allows you to spend more than you earn. With nasty interest, left unpaid or just partly paid, credit card draws you deeper into debt and pushes you further away from being able to save money.
Ideally, you should not just make sure that you spend less than what you earn, but also ‘pretend’ you have less money. For example, if you have $3000 per month, you should put 10% of it, i.e. $300 away to an untouched savings account on the first day you receive our salary and pretend you only earn $2700. $300 per month is $3600 per year. The bigger the better. I used to put 30% of my salary away and lived frugally. When I got redundant after five years of working full time, the saving was a huge relief.
So what do you do after you put a certain amount of money in an untouched savings account? You create a spending tracker, where you track every single dollar you spend. Then build a budget using the spending tracker’s template to later be utilised as a comparison.
At the end of the month (or 3 months, whichever you prefer, the earlier the better) review and compare the spending tracker and budget to see if you are on track.
Build a Spending Tracker
Write down every single expense, every day, no matter how small it is.
When you write down the expenses, make sure you allocate them to the category accordingly.
There are numerous apps to track your spending. Use one that you think easy to use to motivate you on tracking your spending.
But often, apart from looking complicated, you may also get confused seeing too many options as to which apps to use. So you may want to build a basic, easy to understand, spending tracker yourself, using Google Sheet, LibreOffice Calc, or Microsoft Excel.
A basic spending tracker looks more or less like this (you can improvise it from weekly to monthly, or even yearly):
At the end of the 30th day evaluate the expenses and categorize them based on priority. Ideally, the evaluation should be full one whole year so the yearly expenses like health insurance, car insurance, council rates, gym membership, etc, are covered as well.
Decide which spending needs to be cut out or cut back, be clear about which ones are wants and which ones are needs. Yes, you want a cup of coffee from a certain cafe every day but do you need it when you could drink coffee made at home? A cup of coffee in Melbourne costs around $3.80. If you have it from Monday to Friday, that’s $76 per month. If you put the $76 per month, you could save $912 per year. That’s a good money to enjoy a nice holiday in Bali (if you live in Australia).
Find a More Frugal Alternative Where Possible
I use ‘more frugal’ instead of ‘cheaper’ because anyone could easily get confused with focusing too much on not wanting to spend money and end up spending more money in the long run, for example: watching movies. Of course, a cheaper alternative would be watching pirated movies streaming from whatever website. But if that whatever website contains malware, or worse, you get caught stealing (yes, watching pirated movies is considered stealing), you’d end up paying for malware removal, or a hefty fine, which is unnecessary should you stream movies legally.
So back to the example above, if watching movies is a necessity to relieve you from everyday stress, instead of going to the cinema that costs at least $30 for two people per movie (which means, if you watch a movie once a week, it’ll cost $120 per month for two people, more if kids are going too), you could switch to Netflix/Amazon Prime/HBO that costs around $20 (or even cheaper) per month for the whole family.
Build A Budget
After prioritizing and differentiating between wants and needs, as well as making a decision about which ones are to be cut out or cut back, build a budget. Using the spending tracker you’ve built previously, determine how much amount you should spend on each category.
Stick to the Budget
Stick to your budget by always checking it regularly (ideally weekly) if your expenses are still within your budget.
Sticking to the budget can be tricky as there may be unexpected expenses like broken windows, fines, etc. Adjust your budget to cover the unexpected expenses. The less unexpected expenses, the better. You can put the amount of the unused unexpected expenses to an account called ’emergency’ fund.
With the above steps done accordingly, you’ll be reaping the benefit of saving money and be well on your way to achieve whatever goal you’ve set.
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