What’s the secret to how to save more money faster for dramatic financial change?
It’s understanding the importance of your personal savings rate, the percentage of money you keep from your income.
Your savings rate is directly correlated with the time it takes to reach financial independence (when the interest from your accumulated investments can cover the costs of your basic needs to survive).
Here are 3 life changing concepts to enable you to re-calibrate how you save and spend money.
What do you think of when you hear the words “financial success”? Does it match your own idea of success?
We typically think success means a house, a couple cars, and enough money for doodads, family activities and vacations that we’ll work for until retiring at age 65 with a large enough nest egg to live happily ever after.
I’m generalizing of course, but for the most part it’s pretty close to our benchmark for our North American concept of middle class “success”.
Yet, because of debt and our inability to save, 1 in 4 Canadians is one paycheck away from not being able to cover their basic needs. In America, it’s 1 out of 2. This calls for the need to rethink our finances in a radical way!
Most people consume more once they earn more. This is why it’s difficult for them to get ahead in life, even when earnings increase, because their personal savings rate remains the same.
Let me challenge you to defy the norm and substantially increase your savings rate.
To make an impactful change you have to recognize the social pressures to attain success that can affect you negatively. Then you need to figure out how to counter these cultural expectations. This process will help you better understand how to save more money and dramatically increase your savings rate.
Discontentment is usually a result of trying to “keep up with the Joneses”. But what’s most important is that YOU know what brings you satisfaction.
If you can start off in a place of contentment and gratitude, you can easily learn how to save more money. You won’t succumb to societal pressures of wanting to buy more stuff.
If you’re not happy with your current circumstances, ask yourself why. Pay attention to how much of it has to do with society’s notion of image and success. If you struggle with contentment, here are seven strategies on how to be content from author Ruth Soukup’s blog, Livingwellspendingless.
For me, success is freedom in choice of work and what I wish to do with the hours of my day over maintaining a large home that I spend most of my waking hours working outside of to afford.
We are bombarded by well-meaning people all the time on what should be financial success. Often they are coworkers, friends or even family who appear to have nice homes and the latest electronic gadgets.
If you’re in the company of materialistic and competitive people who don’t share your values, seek out a support system of people who share and appreciate your idea of success.
Social pressure also comes in the form of keeping up with super parents who participate in endless (and expensive!) activities hoping to create well-rounded children who are musicians, athletes and multi-lingual prodigies. It’s easy to feel guilty if we’re not giving our kids the same opportunities.
Don’t be programmed by what you see and hear others are doing.
Instead, recognize that everyone has been influenced by a consumer-driven society persuading us what things to buy and what activities we should enroll our kids in. Then stand up and resist it! Defend what is important to you.
Every time you turn on the tv, images of the typical “happy” middle class and wealthy are rampant in advertisements, shows and movies. Hollywood tells you what cars, houses, services and doodads you simply MUST have.
Consider cutting the cable! Here are the benefits:
Instead of deciding which of your current budget items is a need or want, start from ground zero.
Begin with a blank slate. Clear your mind of everything you own and what your current lifestyle is at the moment.
What truly are your needs?
Working through this question in a methodical way will help you learn how to save more money to greatly improve your life. Multiple small changes will compound into massive ones.
4 major categories of expenses include housing, communications, transportation and food.
Housing – According to the Financial Post, one quarter of Canadians spend more on housing than they can afford. Don’t fall into this trap! Costs attached to a mortgage include property taxes, insurance, utilities and maintenance. What do you actually need?
Consider the following:
If you're busy, perhaps a 3-bedroom townhouse that is low maintenance would suit you better than a large home. If you were to make this change, how much money could you put back in your pocket from savings from reduced rent/mortgage payments, property taxes, insurance, and decreased utilities and maintenance?
When my husband and I were discussing a strategy for reducing expenses, we quickly realized that choosing the house and its location was tied to many other categories.
Communications – Knowing how you use a particular technology will allow you to save money by avoiding add-ons or luxury features you don’t need.
Consider your usage needs:
Transportation – According to Edmunds.com, a new car depreciates 11% as soon as you drive it off the lot. After 5 years, it is only worth 37% of what you originally paid. A new car is a depreciating asset you want to avoid at all costs.
Consider your travel needs:
If you only need point to point transportation and must get a car, search for something suitable for family size and needs. Then shop around with insurance companies to find out how to save more money with makes and models that cost the least in terms of insurance. Buy your vehicle based on best practical use and not on what you long for.
I’ve never bought a brand-new car and have always managed to purchase a good vehicle in cash, fully paid. A new car or having a car loan just isn’t something in my vocabulary. This has saved our family thousands of dollars, and when it came time to let go of our used cars, it didn’t hurt because we never paid much for them in the first place!
Food and household items – Food is often an item that is difficult to control because it’s a variable cost. An outing here or there with family, or lunches out at work with coworkers, tend to take their toll on the budget. Are your food costs running away from you because of your lifestyle?
As a shrewd consumer you can learn how to save more money fast because you’ll naturally search for highest value at the lowest price. Proactively manage your spending habits just as a business owner would make hard decisions to increase her bottom line, and you’ll make good headway to financial independence.
Here are 4 questions to ask before making any purchase:
If you adopt these 3 main concepts: defining your own success, keeping focused on your own specific “needs inventory” and running your household like a business, you’ll understand how to save more money much faster than most normal budgeting routines. You’ll be on your way to financial independence much faster without the baggage of societal expectations.
Be prepared for a bit of soul searching and thinking about what is important to you rather than your perception of how you appear to others. Once you know what you need, you can develop your own unique plan to financial independence without costly distractions because you’ll know what matters to you.