Money Savings Tips & Strategies

In today’s economy, everyone is worried about their bottom line. The Great Recession has deeply affected Americans attitude and confidence in all things financial. Despite economists and financial analysts hinting that the worst is over and the economy is recovering, people are still hesitant to relax their spending. Gone are the days where people’s spending philosophy was “Buy Now, Pay Later”.

With the collapse of the housing market, the revealing of predatory lending practices, and the outrageous fees and interests rates pressed upon the consumer by the credit card companies and financial institutions, it is no wonder that Americans are hesitant to go back to the way things were. Adding insult to injury are the debt reduction or debt consolidation scams that are preying on those who are struggling to get out from under crushing debt.

In the midst of all financial turmoil, the average individual is feeling overwhelmed and anxious about making decisions when it comes to money. Here are a few simple money saving strategies and tips that may help you on your way to freeing yourself from the financial burdens of debt and poor spending habits.

In order to even begin to get out from under your debt, you have to be able to stop your debt from increasing. There is no point in trying to get out of debt, if you are unwilling or unable to stop your debt from growing.

If you cannot afford to pay cash for it, then you should not buy it. If you cannot resist the urge to use your credit cards, take them out of your wallet or purse, cut them up, or put them in a bank safe deposit box where they are not convenient to get to. No matter what, stop using your credit cards. You must learn to live without them.

We need to reflect back on the way our grandparents grew up. The Great Depression was one of the worst financial disasters that Americans have experienced, but out of this tragedy was born a new way of life and way of thinking. Thrifty and frugal are two words that come to mind.

I am not contending that we need to save the plastic bag that our bread comes in to be used later (yes, my great-grandmother did that). But there are good core values that we can take from their way of living and transplant them into our current lives. One of those core values is only buying what you need, not everything you want.

This sounds like a no-brainer right, but it is one of the most common areas that people struggle with because it is one of the most difficult habits to change. We are constantly bombarded with advertisements pushing new cars, big houses, the latest fashions, the best vacation spots, or the newest tech gadget that is “simply a must have”.

A simple formula to help you keep track is: Income – Expenses = Remaining Funds. Hopefully, your “Remaining Funds” is a positive number. If it is not, there are two ways to fix it.

1) Increase your income:

2) Reduce your expenses:

This first option is generally the more difficult of the two, as it is not always in your immediate control. Some options for increasing your income are to get a new job with a higher salary or get a 2^nd job, which given the current job market, could be extremely difficult and may not be a viable solution given your current situation. You could also try asking your boss for a raise, but there can also be downsides to this approach. My personal recommendation is to focus on option number two.

The second option is more easily obtainable and easily within your control. One strategy at determining how to reduce your expenses is to track your spending for the last three months and categorizing what you spent in categories such as groceries, utilities, entertainment, dining out, etc… Try to avoid using categories that are ambiguous, such as “miscellaneous” or “other”. You can do this manually, or there are a lot of inexpensive computer programs to help individuals track their spending such as Quicken, Wesabe, or PeachTree products.

Once you have categorized your spending, review the categories and determine which ones are “wants” and which ones are “needs.” This is the step that takes the most discipline because it is very easy to justify to yourself how dining out on nights that your kids have sports or extracurricular activities is a need because you don’t have time to cook. Your needs categories should include only the basics; shelter, food, transportation, etc…

This does not mean to go to the extreme and not budget for any thing that may fall outside of these categories. There will be times when you need new clothes, especially if you have children. However, that does not mean that you need to go shopping every week or even every month. Two to four times a year for clothing is reasonable.

Review the categories that you have placed in your wants category and analyze the spending. This is where you will be able to make the most savings. By reducing your “wants”, or discretionary spending as experts may refer to it as, you can regain control of your finances and be on the right track to working your way to financial freedom.

Most of us have all heard the saying, “Rome wasn’t built in a day.” The same can be said for financial freedom. For most, it is a long hard road that is riddled with obstacles and pitfalls, but if you set small goals your likelihood of success is greatly increased. Start small and let those efforts snowball into larger successes.

For example, set a goal to bring your lunch one day a week, do this for a few weeks and then increase it to two days a week, and so on and so forth. On average, this is a savings of $6-$8 a day. This amount may not sound like a lot, but put it into perspective; if you were to bring your lunch one day a week for a year, you would save on average $26-$34 per month, or $312-$416 a year. If you were able to bring your lunch 5 days a week for an entire year you would have an average savings of $130-$173 per month, or $1,560-$2080 per year. For most people, that would pay off one entire credit card.

By starting small, you gain confidence with the small successes and can position yourself to better achieve the larger long term financial goals.

There are very few people who can set a plan and implement the strict self control to continue to cut back on something and never give in to temptation. Therefore, do not forget to reward yourself for achieving your small goals. Keep the rewards small so as not to undermine the progress you have made. For example, buy that cd you were looking at, or go see a movie with a friend. Not only, does this keep you from binge spending or impulse shopping, but it is also an emotional motivator to keep you working towards even bigger rewards.