Using the calculator you will see the percentage you spend on different areas of your life. Using this information you can then make this more balanced so it frees up some of your cash.
In reality, it doesn’t matter how much cash you can free up as you can achieve great objectives using whatever means are at your disposal.
It is the act of creating that goal and doing something about it that is the trigger to making things happen.
Unless you make an effort to create some sort of wealth, at whatever level, you never will as it is far too easy to spend your money.
It requires effort to create money and it requires effort to maintain it.
What’s your dream?
What is the reason you want to save money?
Why is it so important now?
For me, it was because I always felt like I couldn’t justify spending anything on my new business venture. Whenever I found something to make my life easier I felt I should be spending the money on my family.
This meant I always felt guilty if I had to spend some money.
As a result, I was always trying to do everything on a shoestring. Which is not a bad way to start with, but it did mean that some things took longer to do or I would put them off rather than making progress. It also meant I had to work harder and longer, which ultimately meant I spent less time with my family.
Now I am making an effort to put aside some money each month until the business can pay for itself.
Knowing what you are saving for, or having a savings goal, helps you stay focused when the going gets tough. It also helps you prioritise your spending.
Judging the importance of your spending ‘wants’ and ‘needs’ against your saving goal, makes decision making easier. Whichever is more important to you wins.
What are you worth?
Do you find it impossible to save?
Is there always something that clamours for your money before you get round to saving?
Here’s the thing, it is easy to spend everything you earn and end up with nothing at the end of the month.
How many of us can also say where every penny of our money went?
But there is an easier way to ensure you save some money.
By spending all your money each month what you are actually doing is working to pay everybody else. You are not paying yourself anything.
You are working to pay others.
So putting it like that, do you think you deserve to pay yourself something too?
Have you earned the right to actually pay yourself something?
I think so.
You deserve it!
Pay yourself first
If you never have any money left at the end of the month then try a different approach from now on.
By waiting to see what is left each month before you save, you are denying yourself the opportunity to save.
You are saying to yourself “something else could be more important than saving, so just in case I won’t save until I know for certain”.
That kind of thinking will always have spending as the priority rather than saving. And you know which one always wins.
So let’s try and swap that around.
Always try and keep something for yourself by making yourself a ‘saving payment’ as soon as you get paid.
Ideally pay yourself 10% of what you earn, as soon as you earn it, whenever you earn it.
Make sure you take your payment before any other payments come out, and store it somewhere safe.
You are now actively choosing to live on less than you earn.
Once you have taken your saving payment out, whatever is left use it as before.
Make sure you adjust your outgoings to accommodate your new income.
Try using our free budget calculator to help figure out how you can reassess how your money is spent now you are choosing to live on less than you earn.
The 60/20/20 budgeting rule
The 10% rule is an easy habit to get in to and is easy to follow.
But if you want something more structured there are more complex rules that you can follow.
One of them is the 60/20/20 rule.
The basis of the 60/20/20 rule is to allocate certain percentages of your income to certain things and adjust your spending to fit in with the ratios.
As an overview this means allocating:
20% on financial goals, such as debt reduction, emergency fund, and investments
20% on discretionary spending, such as entertainment, travel, eating out, etc. basically the fun stuff.
To break this down even further, here are some rough percentages for living expenses based on an average household income:
Utilities (power, gas, water, broadband, phones): 5-10%
These figures are guides based on average incomes. Obviously, they can be adjusted based on your circumstances.
If you need some help getting your money balance right these are a good starting point.
We have used these figures in our free budget calculator to compare your spending with the ‘recommended’ values.
Make your money work for you
Whichever of the above rules you follow, once you have started saving make sure it is working for you.
When you are starting out it is better to place your saving payment somewhere risk-free. Somewhere with a guaranteed interest rate, rather than putting it into something risky where you may lose the lot.
It is the interest rate you get that makes your savings work for you. The higher the interest rate the better your return.
If you don’t dip into your savings and continue to save the interest amount then this also gains interest.
This effect is called compound interest, and its effects can be quite significant over time.
“Wealth, like a tree, grows from a tiny seed. The first copper you save is the seed from which your tree of wealth shall grow. The sooner you plant that seed the sooner shall the tree grow. And the more faithfully you nourish and water that tree with consistent savings, the sooner may you bask in contentment beneath its shade.” Clason, George S.. The Richest Man in Babylon
Living the dream
Now you have got into the habit of saving you will soon see your nest egg grow.
Don’t be tempted to spend it on anything other than your initial goal.
When you have reached your goal, don’t feel guilty about spending it.
This is what you have worked for.
This is what you have saved for.
“Enjoy life while you are here. Do not overstrain or try to save too much. If one-tenth of all you earn is as much as you can comfortably keep, be content to keep this portion. Live otherwise according to your income and let not yourself get niggardly and afraid to spend. Life is good and life is rich with things worthwhile and things to enjoy.” Clason, George S.. The Richest Man in Babylon
Side note – As you can see I have quoted a lot from a book called ‘The Richest Man in Babylon’ by George S Clason. I bought this book many years ago. It is quite simplistic in its approach, but it teaches you valuable lessons on money. Over time I have forgotten to follow its principles. I am glad I have found it again and I am making great endeavors to follow the rules again.