Everything the Internet told you about Saving Money is wrong
How do you save more money? This is an age old question, and everyone has a different answer. You can decrease your rent, get rid of your car payment. What about increasing your income, or getting a second job? I’m to be honest with you: How do you save more money? is a terrible question to ask. What you should be asking is What is the most effective way to save more money? Because not all strategies are created equal, and the advice you’ve heard about saving money probably isn’t good either.
Not all “Saving Money” Strategies are Created Equal
We need to get this out of the way as soon as possible: not every strategy to save money is effective. In fact, some of the more mainstream advice is so ineffective that I would consider it “wasted effort.”
I got the term “wasted effort” from my college Calculus II professor. He said that “wasted effort” was when you performed an entire page of arithmetic, only to arrive at the wrong answer. He would be forced to give you no credit, because “who deserves credit for the wrong answer.”
Anyway, I want you to try and forget your preconceived notions about saving money. In fact, throw them out the window. Most of the advice you’ve received is idealistic in nature. There is nothing wrong with idealistic advice, except for the fact that it doesn’t give you actionable advice to help save money right now.
Well, we’re going to go over a few methods that you can try this week, even today, to help you save money. And the goal will be… to save $500 this month!
Sound tough? I want you to try and save $500 this month. That’s… a lot of money. How much? $500 a month is enough to completely fund your Roth IRA. It’s enough to help pay off your high interest credit card debt. It’s enough to have a significant impact on your finances. Plus, it’s difficult.
I don’t believe in setting easy goals. So let’s do this. But first, we’ll start with what wont work, at least now.
Savings Strategies that Don’t Work
I’m going to characterize the savings strategies that don’t work as the “big ones.” Cutting these big expenses is very difficult, if not impossible. At least in the short term. Yes, you can reduce these expenses over time, but you aren’t going to make a lot of progress in a month, let alone a week or even a day.
The other thing is that these “big” strategies require you to spend money, sometimes a lot. While it might make sense to spend $5,000 to save an extra $500 per month, who actually has an extra $5,000 laying around for this purpose? Most people don’t. So we’ll go through them, and see why they are so ineffective for the average person.
“Get a cheaper apartment!”
I see this advice thrown around all the time — and I hate it. On the surface, it’s good advice. Rent is usually your biggest expense. So if you can cut your biggest expense by 10 or even 15 percent, that’s a huge gain for you.
What’s the problem? Raise your hand if you can cut your rent by 15% right now. *crickets*. The fact is that you can’t easily decrease your rent. You can go to your property manager and ask for a decrease, but they’ll tell you to pound sand.
You can also find another apartment, that should be easy, right? Just find a cheaper apartment, pay your lease termination fee, pay movers to transport your stuff, pay your security deposit, first and last month’s rent. Like I said, easy.
In the end, you’ll usually pay 2x your monthly rent to terminate your lease early (non-refundable), $500 – $1,000 to pay movers, and then about 3x your monthly rent for a security deposit/first/last month’s rent. If your old rent was $1,000 and your new rent is $800, congratulations! You’ve spent $5,400 for the privilege of saving an extra $200 per month.
Presumably if you had an extra $5,4000 sitting around, you probably wouldn’t even have this problem to begin with.
“Get rid of your Car Payment”
Reddit is very guilty of this advice, especially those on r/personalfinance. “What, your car payment is $300? Sell it, and buy a $2,000 beater off CraigsList. What can go wrong?”
This isn’t terrible advice either. Just sell your car and get a cheaper one. What can go wrong? Ignoring the part where it’s going to take you 2-4 weeks to sell your car (at least), we have a big elephant in the room: most people are underwater on their car loans.
Being “underwater” on your loan beans you owe more than the vehicle is worth. For example, you might owe $10,000 on a car that is worth $8,000. That means if somebody buys the car from you, you need to come up with an extra $2,000 so you can give the title to the person who bought your car.
Let’s say you decide to sell your underwater car to save some money. We’ll assume that you’re only underwater by $1,000. What can go wrong? Well, to sell your car, you’ll need to come up with $1,000 to pay off the loan. Then you need to purchase a cheap used car and register it. We’ll say that only costs you $3,250 ($3,000 used car price + $250 in registration / taxes).
You’ve now spent a total of $4,250 to get rid of your newer car, for the privilege to drive an old junker, and eliminate your car payment. Is this worth it? In reality, probably not. If you had $4,250 lying around, you could have used that to pay off a lot of your car loan, and could have refinanced to lower your monthly payment.
“Get Another Job”
I’m going to ignore the typical advice of “increase your salary” because that involves job hunting. Job hunting is time consuming. You should expect it to take at least a few months so you can find the right fit and salary. Instead, we’ll briefly talk about taking on a second job.
This is actually not bad advice at all. Most of us work 9-5, M-F. That leaves plenty of time during the nights and weekends to wait tables, be a bartender, or take the graveyard security shift.
This sounds exciting and worth it, right? Maybe, maybe not. The good news is you can get a second part-time job pretty easily. The bad part? You’ve now traded the majority of your personal time for an extra $500 – $1,000 per month.
Who here would trade all of their personal “alone time” to make some extra money? Honestly, there are a lot of people who would do this. If you are one of those, definitely consider getting another job. But, if you don’t want to spend your entire life working, getting another job just isn’t realistic.
Finally, Let’s Start Saving Money
We’ve gone over the traditional “advice” to help you save money. At this point, we know that advice is well meant, but it’s simply ineffective. We want actionable ways to save money now, not ways that require thousands of dollars right now to save a few hundred per month in the future.
Find the Little Expenses
I’m definitely a contrarian here, but go over your budget. Go over your spending. And find those smaller expenses. These are the expenses that we will cut to start saving money right now.
Now, everyone’s budget is different. And not even a little different, completely different. We’ll all have similar big expenses: rent, car payment, etc. But reducing those expenses is tough, so we’ll focus on the small ones. Another reason that I focus on these small expenses is they don’t require you to spend money. If you want to cut your rent, you’ve gotta spend thousands — unacceptable!
Here is a list of common small expenses that most of us will have in our monthly budget:
- work lunches
- takeout / eating out
utilities(this is usually very hard to reduce without spending money)
- cable / internet
gasoline(this is usually very hard to reduce, you’ve gotta drive to work)
- car insurance
entertainment(unless your entertainment budget is excessive, keep enjoying your life) cell phone bill(tough to decrease the bill without paying cancellation fees)
I could go on, but this list should be pretty comprehensive. Notice that some of these small expenses are definitely not suitable for reduction. For example, you can’t call your power company and ask for a better rate. Well, you can, but it probably wont work (you can always try).
Most people spend a ton of money on food. Not a literal ton (2,000 pounds), but a ton ($250+ per person). I’ve talked to at least 15-20 people about their food budget, and the general consensus is that most families spend $200 – $250 per person per month on groceries.
Remember, that’s just groceries. For a a family of four, they’re going to spend $800 – $1,000 on groceries, per month. Of course your mileage may vary, but we can do better. But how?
My favorite solution to this is Meal Prep Sunday. They are a community on Reddit that will help you cheaply plan your meals for the entire week. Not only will you eat healthier, but the food will be tasty, and you’ll save a lot of money. A lot of the people who actually do Meal Prep Sunday spend closer to $100 – $150 per person per month on groceries.
Work lunches are a touchy subject. Eating out with your coworkers can be an effective way to get promoted. It can also be a very effective way to eat unhealthy food while spending a ton of money.
Let’s say that you eat out for lunch at work 8 times a month (twice a week). I’m guessing most work lunches are about $10. That means you are spending $80 per person per month to eat out while at work.
You can always try and tone this down to eating out once a week. Maybe you can’t because of your company culture. Regardless, this is an area where you can save $20 to $30 per person per month, and it does add up.
Takeout / Eating Out
This one hits home for me. I used to get takeout 3x a week. After spending $250 per month on my groceries. Why? Laziness, mostly. In my area, takeout is about $20 per person per meal.
If you get takeout or eat out 3x a week, you’re spending $240 per person per month to get takeout or eat out. Remember, you’re already buying groceries and going out for lunch. What I did was tone this down to 1x per week, and and made an event out of it. I would get pizza with Zero Day Fiancée on Friday, and we’d watch a movie. Win-win!
We ended up saving almost $250 a month doing this.
Please, don’t yell at me. I don’t drink coffee, so I don’t know how addicting all that caffeine is. However, I know that my dad spends $100 on coffee per month. He goes to Starbucks after lunch every day at work, and gets his fix.
I’m not trying to separate you from your coffee, but we can learn something from my mom. My mom makes ice coffee the night before, and brings it in a glass to work in the morning, then tosses it in the fridge. In the middle of the day, she drinks her ice coffee.
What does this mean? Her coffee costs more like $1 instead of $5, which means she’s spending $80 less than my dad every month. And I’m pretty sure she enjoys her coffee just as much as my dad does. Actually, that’s a lie. My dad loves coffee, so my mom will never enjoy it as much as my dad.
Cable / Internet
Spending a ton of money on your cable / internet bill is really easy. But so is saving money. I used to have Comcast and paid $110 per month for a 100 Mbps connection, and 240 channels in HD with a DVR. After my deal was up, the cost shot up to $160 per month, unacceptable!
I tried calling Comcast, and they dropped my bill to $150 per month, a minor win. I then called Verizon, and got Internet only for $75 per month. Within 2 days, I had the new equipment installed, and everything was working. I cut my Internet bill by $75 with a 5 minute phone call, and 2 days waiting for hardware to ship.
When was the last time you called other car insurance companies to get quotes on your vehicle? *crickets*. This is something that we hate doing, but is totally worth it.
So, I’m a 27-year-old male with a perfectly clean driving record, and I own a 3-year old car that isn’t underwater. Yes, it may be a Golf GTI (turbocharged 210 horsepower hatchback, yay!), but it isn’t crazy.
The first few insurance companies quoted me $300 per month. In fact, 5 or 6 companies quoted me that much. That’s ridiculous, in fact, it’s unacceptable. I called Geico, and my rate for the same insurance coverage was $100 per month. Cha ching! I just saved $200 a month by switching to Geico.
It really pays to shop around.
Shopping used to be my Kryptonite. I used to have a terrible spending problem. In 2016, I spent every single dollar I earned, and most of it went to food and then shopping. A rough estimate puts my old monthly shopping expenses at $1,000 per month.
I have no idea what I was buying. Some clothing, random stuff, etc. At the end of the day, I don’t really remember what I bought. Most of it was to make me feel better. Swiping my card and getting something new made me feel happy.
I obviously don’t know what your situation is, but pick a reasonable budget for shopping, and do your best to stick to it.
It’s Time to Save $500 Per Month
I hope you’ve found a few areas in your budget that you can cut, even a little bit. When I was growing up, I remember watching those Jimmy Fund commercials in the movie theatre. Their tagline was “a little bit in abundance is a lot.”
This phrase is so true. If you can identify a few areas of your budget and save $25 here, $50 there, you’ll hit $500 in monthly savings in no time.
If you know me, I love using examples. I personally think they are the best way to show how effective a strategy can be, so let’s go through an example. We have your average U.S. household: $53,000 income, and let’s say no children. They save 5% of their income (about $200 per month), and save the rest. They want to save more money, so they decided to look at their expenses.
Our hypothetical family currently spends $500 per month on groceries. They decide to visit Meal Prep Sunday, and cut their monthly grocery bill to $400 (savings: $100).
They do a very good job and never eat out for lunch. Unfortunately, they go out to dinner 3x per week. They don’t go to fancy restaurants, but 12x dinners at $50 apiece is $600. They decided to cut their monthly eating out to 9x per month (savings: $150).
Cable / Internet
This family is like me, and they don’t drink coffee. However, they love watching TV. Their cable bill is $180 (this is what my mom currently pays). They decide to cut the cord, and found an Internet-only provider that costs $70 per month. But, they like TV, so they pay for Netflix, Hulu, and HBO, which costs $40 per month (savings: $70).
Next, they get additional car insurance quotes for their 2 vehicles. To get their business, State Farm offers a quote that is $30 cheaper, but involves inconsequentially decreasing their coverage (savings: $30).
They don’t really have a shopping budget, so no extra savings there. However… cell phones! Their contract with Verizon is up. They decide to switch to Sprint, dropping their cell phone bill from $120 to $60 (savings: $60).
At the end of this experiment, our family didn’t end up saving $500. They saved $360 per month. It’s a great start, but they didn’t end up hitting their goal. Now all of this was just an example, I could have added 2 children and that would easily push their savings higher.
I could have said they got rid of their shopping budget, or completely eliminated eating out. But that isn’t realistic, and I don’t want to give you worthless advice. What we have here is actionable advice that you can implement right now.
Save Money Now, and Later
Yes, your end goal should be to save as much money as possible. This means minimizing your rent (if it’s too expensive) and getting rid of your car payments (maybe pay down the loan faster?). But those take time, and I want you to start saving money right now.
The absolute best way to start saving money right now is to identify small expenses, and see how you can cut them. As you’re cutting those expenses, develop a plan to decrease your larger expenses, and you’ll be on the road to saving 25%+ of your take-home pay!
So what do you think? Are there any areas in your monthly budget that you can tone down? How much money do you think you can save? You know my story. I found $1,500 in my monthly budget that I just didn’t need to spend, so I stopped spending it. It took awhile, but I’ve had a ton of success with this method.
Once I worked hard to cut those expenses, I slowly figured out a way to decrease my rent, increase my salary, and I’m deciding if I should pay down my car loan faster to improve my cash flow. The best part is that I have the option to. Saving more money tends to do that to you. At this point, my savings rate is close to 75%, up from 25% a year ago. We’re talking about life changing money.
If you’re looking to save even more money, check out this awesome piece by my friend Emmie Martin at CNBC, she has a few tips to save you even more money. So everyone, let’s save some money!