If you want to accumulate wealth, you have to cut back on spending.
To help you get started, we rounded up money saving strategies from the best savers out there — those who have saved over 50% of their income.
Not only will increased savings allow you to put more money to work and grow it through investing, but if you save enough, you could even consider retiring early. Most of these diligent savers retired well before the average retirement age of 62.
“Many assume that you have to work 40 or more years to retire, or that long term international travel is only for college drop-outs and dirty hippies living on rice and beans,” write Jeremy Jacobson and Winnie Tseng, who retired comfortably in their 30s and now travel the world. “It doesn’t require winning the lottery, inheriting a windfall, or getting lucky on some penny stocks. There is really only one thing that determines how quickly you could join us on the road: savings rate.”
Read on for tips to increase the amount of cash you’re able to put aside:
Track your expenses.
Do you know how much you spend eating out, on monthly subscriptions, or on coffee? Chances are it’s more than you think.
“Write out all of your spending and analyze it,” explain Jacobson and Tseng of Go Curry Cracker, who committed to saving 70% of their income for about 10 years in order to retire comfortably in their 30s. “Track your dollars. I guarantee you’ll find something that either you didn’t know you were spending your money on, or you felt was unnecessary.”
Set up an automatic contribution to your retirement savings.
You should already be contributing to your employer’s 401(k) plan if you have access to one, and taking full advantage of the company match if it’s offered. Just like a 401(k) contribution is automatically taken from your paycheck, another smart strategy is to automate your contributions to alternative retirement accounts like an IRA.
Simply choose the percentage of your paycheck that you need to set aside and invest in order to reach your financial goals, and set up an automatic transfer from your checking account into your savings — you’ll never even see that money and will learn to live without it.
“You just figure out how much you need to deduct from each paycheck and then set it up at the beginning of the year,” writes Joe Udo of Retire by 40, who saved over half his income and retired at age 38. “You can do the same with the Roth IRA and 529 as well. After you set up these auto contributions, then you’re safe to spend the rest of your take home income.”
Think about money as something to invest — not as something to spend.
If you’re going to develop one effective habit to help you achieve your financial goals, make it the way you think about money — start thinking about it as something to invest, rather than something to spend, recommends “Mr. Money Mustache,” who retired at age 30 by saving about two-thirds of his take home pay.
“The growing part of my money is pretty simple,” he told Farnoosh Torabi on an episode of her podcast, “So Money.” “I just like the idea of keeping all money invested. So if I run into a surplus sometime, I don’t think of something to buy with it, I think, ‘OK, I better get rid of this money and put it to work again.’ So, I sweep it out of the bank account and into regular index funds.”
While a raise, generous birthday gift, or lucky lottery winnings may trigger a shopping spree for most of us, Mr. Money Mustache’s instinct is to invest surplus money, which in part eliminates any spending temptation that may arise.
Do your research.
Bloggers who go by the names of “Mr. and Mrs. Frugalwood” are saving about 70% of their take-home pay and plan to be retired comfortably by 2017 with the help of one key habit: diligent research.
When it comes to buying anything, they’re “methodical and ruthless,” they write on their personal blog. “We observe, price compare, research, deliberate, investigate used options, consider if we already own something that’ll suffice, determine if it can be borrowed, and then carefully make our purchase,” they write. “In this way, we find the best product at the best price.”
When it came to buying a house, the couple looked at over 270 open houses before settling on their place in Cambridge. They even put extensive research into dog breeds before buying their greyhound, and they’re already planning ahead for their next car, even though their current minivan likely has 100,000 miles left on it.
This may be more feasible for some than others, but if possible, trade in your car for public transportation, a bike, or your own two feet.
Jacobson and Tseng estimate that they save $835 a month thanks to their car-free lifestyle. “It was important for me to not have a car, so I picked my current home based on having a direct bus route to work,” Jacobson writes. “It’s been working pretty well.”
Plus, you’d get the health benefits of walking and biking, and wouldn’t have to deal with the stress of the road.
Use online shopping portals.
“I go through the Mr. Rebates shopping portal for all of my online purchases and pick up an extra two to 6% on just about everything I buy online,” writes Justin McCurry of Root of Good, who retired at age 33 thanks to diligent saving.
“Sometimes the percentages are much higher. In dollar terms, I get a buck or two for smaller purchases of a few items, $4-5 for reserving a hotel room for a few nights, and $20 or $30 if I buy something significant like a television or computer. I shop at whatever online retailer provides the best deal, and I just remember to click through Mr. Rebates right before I check out. Ten seconds of work for a buck or $30 is a great use of my time.”
Ebates is another shopping portal worth checking out.
Get used to spending money now that will save you money later.
It can seem counterintuitive to make purchases to save, but that’s what some of the most successful money-savers do. They’re not just buying things, they’re investing in things — tools and services — that will eventually save them money over time, whether that’s a programmable thermostat or an online project-management certification.
“We could’ve gotten cheaper analogs of each of these things, but, every item is something we determined was worthy of the added expense,” they explain of their list of “10 shockingly expensive things they own.” “Most of these products enable us to attain greater frugality in the long run.”
Find pleasure in things that don’t cost much — or anything.
The best savers find, and enjoy, the wealth of cheap and free activities out there.
“Sure, it’s fun to spend money. I like eating out, traveling, and other entertainments as much as anyone,” writes Udo. “However, I think I found the secret to spending less money. You have to learn to enjoy free or cheap entertainments. These days we spend most of our time enjoying hikes, reading, playing at the playgrounds, cooking, listening to various free concerts, and ferreting out free and discount days at the museums around town.
“There are a ton of free things to do out there and you don’t have to spend a lot of money to have fun. Spending money for fun once in a while is good, but it shouldn’t be the norm.”
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