So why do people save? Whether it’s that they need money to save for retirement, to pay for their education, a down payment for a house, or maybe for something fun, people save for entirely different reasons, based on their own lifestyles and circumstances. But ultimately, we should all be saving to meet specific goals.
When we talk about saving money, finance experts usually point to the two things you can do to save more money: reduce your expenses or earn more. So many decide they’re spending way too much, decide they want to save and look for ways to earn extra money and/or reduce their living expenses. And then they decide what they want to spend that money on. Or rather their bank account does. And as long as it’s there, most often it’s spent.
My approach is slightly reversed, in that, I set goals that I want to work towards first, and if I’m short, then I find ways to make that happen, not the other way around.
Working towards your goals
So, you’ve set some goals? You’re really looking forward to that dream vacation, and you work out your monthly payments — how much you can possibly afford to make – and your scientific calculator is laughing at you. Telling you, you will reach your destination in 7.34 years! So your partner says, ‘but we really need to go, we deserve this vacation’, and then suggests, wait for it… putting it all on credit! Gasp!
That’s the easier answer, but more costly in the long-run. Our family is looking to buy (a) newer vehicle(s) soon to replace our ageing fleet. Yep, it’s been one of our goals for a year and a half now. But when we started saving, it wasn’t easy, we originally estimated it would take a lot longer too.
So we put our propellor thinking caps on and started to look for ways to save/make more money. But how?
Saving to meet your goals
Let’s say your goal is a vacation. You’re planning a beautiful four-week tour across Italy’s famed Amalfi Coast. You estimate, with food, flight, accommodation, and a buffer, of course, the trip will cost you $10,000 for the two of you. You’d like to go by the beginning of August, but you’re about $3,000 short. You could delay the trip a few months, but that would take you into the winter and considering you’re touring a coastline, it would be nice to get there by August. But August is now only 9 months away, which means you have to find an extra $375/month to meet your monthly goal (note, August isn’t counted).
So let’s look at the two options in further detail:
Reduce your expenses
Can you save on spending? Groceries, dining out, entertainment, clothing and cosmetics can take a big bite out of your budget. So look for ways to change your spending habits. Every little bit adds up.
Call around to reduce your fixed expenses. Fixed expenses are expenses that don’t fluctuate in cost from month-to-month, but that doesn’t mean you can’t negotiate better prices. Shop around for car and home insurance. Call up your cell phone, cable and internet providers or any other services you may use and see if there are better, less costly plans to suit your needs or look at alternative providers.
And cut your wasted costs. Still, paying for a gym membership you never use, or a magazine you never read? Ditch what you don’t use and reclaim the wasted costs.
If you find that after reducing spending you still can’t meet your goals, it’s time to look at ways to make extra money. And there’s no reason you can’t do the two simultaneously.
Get a side gig. Everyone has marketable skills. Whether you choose to work for another company at night to bring in extra income, or start your own little business painting houses, designing websites, writing for newspapers, or whatever it may be. Look for ways to increase your total earnings.
Look for ways to increase your earnings at your current job. Although, many might not think this is the easiest of times to ask for a raise, if you’re an exceptional worker with a great track record, many companies really don’t want to lose good employees. If your job pays by the hour, see if you can eke out some extra hours of overtime to increase your take-home pay. Job-hopping also seems to be a popular and quick way to earn a raise today, if you can stomach the risk.
If you’re already self-employed: just figure out a way to ask for a raise. With our first child, we ended up working a lot of nights, so our time was spread out more thinly and got much more valuable. So send a note to your clients advising them of a rate change (never ask and give them plenty of notice). The other way to do it if you’re afraid to ask for risk of losing a client is to find ways to bill more hours into a job, in other words, upsell. If you do this well, not only will your job be more valuable, but your client should feel you’ve serviced them well. An upsell can be a win-win if done properly. But I’ll tell you, I’ve been questioned about my quoted hours at times, but never about our rate changes, especially if it’s been a while since you have.
Allocation, allocation, allocation
While that’s all fine and dandy, I think what’s arguably even more important than saving your money, is knowing what to do with it, once it’s saved. Or better yet, before it’s saved.
‘Give every dollar a purpose’ is a phrase that’s often thrown around budgeting circles (yes, we budgeting nerds like to gather in large groups and discuss… ok, I’m kidding). But if the savings you’re after just end up back in your account, there’s a pretty good chance you’ll spend it. If you don’t use it, you’ll lose it. If it isn’t allocated, it isn’t saved (and other terrible clichés).
Instead, when you call up a service provider and you receive a discount, make a note to check your next bill. If your next monthly bill shows you’ve saved $20 over the previous, redirect that $20 a month to automatically work towards your next savings goal. And save it (or invest it to save it faster). But whatever you do, please don’t let it sit idle in your checking account and die a frivolous spending death.
When you finally meet your goal, dedicate your monthly allocation to your next goal, before giving yourself a big self-congratulatory pat on the back.
So that’s my approach in a giant nutshell, what’s yours (in a not-so-giant nutshell)?