So many people are trying to save money. They want to have an emergency fund to feel more secure, save for a car or home or maybe take the family on a special vacation. The problem is they are asking the wrong question when they ask “How do I save more money”. Saving money is easy, IF you have money that isn’t already spent on other expenses. What they should really be asking themselves are the following four questions:
How Can I Eliminate My Debts?
Every single penny you pay to the credit card companies, to the student loan organizations, to banks and credit unions are pennies you could be saving. If you are struggling to save and you have debts your first priority should be to eliminate those debts as quickly as possible. I know that can be easier said than done. If you have no money to save where will you find the money to pay down your debts faster? Move on to the next question for the answer.
Where Can I Cut Unnecessary Expenses?
In most if not all cases the money you need to pay off debts faster and accelerate your savings is going to come from eliminating unnecessary expenses. Every expense you rid yourself of is another chance to make better use of that money. What expenses are unnecessary? Only you can answer that question, but I generally consider any expense that is a convenience expense to be a candidate for elimination.
Some examples of convenience expenses are:
- Cell phone data plans and possibly even the cell phones themselves
- Cable and internet
- Eating out in any form, including fast food
- Most memberships, especially those you are paying for and underutilizing
You could even make a case for your car payments and all related expenses as being a convenience, especially if you have access to cheap public transportation. At the end of the day anything that isn’t for food and shelter could be on the chopping block as a convenience expense. It’s up to you to decide how much convenience you really need versus how much you want to be able to pay off debts and save more money.
How Can I Make More Money?
If your budget is balanced and you have no way to cut any more expenses there is still an opportunity for you to save money. You simply need to increase your income. I’ve done this several times during my life when the need was great enough. Prior to the internet I went out and found a part time job. Was it tiring and inconvenient? Sure it was, but not nearly as tiring and inconvenient as having a constant burden of debt hanging over my head.
With the advent of the internet it is even easier to make additional income. Now you don’t even have to leave home and if you go about it smartly you might even find that you’ve created a business for yourself that even outdoes your day job. One perfect example of this is Crystal over at Budgeting in the Fun Stuff. She was able to turn a small side hustle into a full time income in less than 18 months. I’ll talk more about making money online in future posts, but I just want to say that I have never been at a loss for ways to make more money over the past 30+ years. There’s nothing particularly special about me so if I can do so can you.
What Should I Be Doing to Maximize My Investments?
I know you are probably thinking “How can I invest when I can’t even save”? That may be true now, but if you follow the 3 steps about you will soon find that you DO have extra money at the end of each month. After setting up an emergency fund for duh emergencies and sinking funds for planned big purchases (car, vacations, weddings, etc.) you need to start investing. Just like the interest saved on your debts, every penny of interest you earn on your investments can be considered savings, as long as you don’t withdraw it that is.
Even if you have no idea how to analyze a stock or bond, you can get into investing. Many studies have shown how difficult it is to time the market and unless you are an investment professional I recommend you don’t even try. Stick with the proven investments such as index mutual funds or ETF’s and solid dividend paying stocks. Those two investments should make up the bulk of your portfolio and until you have a substantial net worth you won’t need anything else.
As you see, asking “How can I save more money” is futile. What you really need to do is work on the things that are draining your money. Debts, unnecessary expenses, low income and lack of investments are sure to keep you broke. Work on improving those 4 things and soon you be asking “What should I do with all the money I’m saving”.