One of the questions I was asked recently was this: What can I do to save more money?
I can’t count the number of times that someone asks a variant of this question in a year, but this individual was looking for strategies to help him put more money aside for investing. He felt like his money should be doing more for him.
He’s not the only person looking for ways to save more money. Last summer, I wanted to put more money aside for travel because I have big plans, and I wanted to put more aside for bigger trips with my son.
If you look to save more money — no matter the reason — here are 5 steps you can follow to help you reach your goals:
1. Decide What Matters
Before you make any decisions about what to do with your money, you need to know what matters most to you. What fulfills you? What goals are most important in your life? It’s practically impossible to find the motivation to save more money when you don’t have a clear idea of what you’re saving for.
My list of main priorities (after taking care of my survival) includes:
- Future financial security/retirement
- Opportunities for my son (including 529 contributions)
- Creating memories with loved ones
- Community involvement
Narrowing down these priorities helps me stay on track. These things matter most to me, so it’s easier for me to say no to spending that doesn’t help me reach my goals.
2. Identify Spending That Doesn’t Help You Reach Your Goals
Once you know what matters to you, you can look through your spending to see where it doesn’t match up. Look through bank statements and check your personal finance software. Identify items that don’t match up with your priorities.
You might be surprised at what you discover when you complete this exercise. I realized that I don’t watch much TV, but I was spending more than $100 per month on satellite.
I ditched the satellite TV and paid for streaming on Hulu and Netflix instead. Amazon Prime is another good streaming video option. Now, I get the shows I want, and at a fraction of the price.
Instead of spending on something I don’t care about, I have extra money to put toward one of my true priorities.
3. Figure Out How Much More You Want to Save Each Month
After you’ve examined your values and your spending, you can figure out how much more you want to save each month. In my case, I decided that $200 per month would work well for me. It’s held in a taxable investment account allocated between a high-yield bond fund and an index stock fund. Most of my short-term travel can be handled with money I have on hand each month, and isn’t a problem. However, if I want to go on a big trip, like our planned trip to Europe in 2017, I want to be able to save up ahead of time.
My friend wanted to be able to set aside an extra $100 per month as a way to fund some of his unexpected expenses. He performed a similar exercise to determine what he needed in order to give his savings a boost.
4. Cut Out the Extra Spending
Once you go through the process of evaluating your spending based on your goals and values, you will find that it’s easier to cut out the extra spending. And you’ll need to cut that extra spending if you want to save more each month.
I don’t miss the satellite programming. At one point, I thought about buying a big new TV and a new gaming console. I thought about the situation. I asked myself if a big TV and a new PlayStation would help me reach my goals — especially when what we have at home is adequate.
My son and I discussed the pros and cons, and decided against making the extra purchases. We want more of the money to go toward our other goals.
You can do the same thing. If you find something that doesn’t fit your values, cut it out and then save it toward something that better reflects your goals.
5. Make it Automatic
I like to automate my finances as much as possible. Even my charitable contributions are made automatically. This goes for savings as well. Once you figure out how to cut the extra spending so you can save more money, set up an automatic transfer into an account. In my case, it goes into an investment account. My friend automatically transfers his to a savings account. Do what’s comfortable for you, and make it automatic so you don’t have to think about it and remember it each month.
With the right planning and priorities, you might be surprised to discover that it’s possible for you to save more than you thought.