A Guide to Wealth
How to Save, Well.
In my last post I talked about the importance of saving at least 10% of your money earned, commonly said as “pay yourself first”. In this post, I’ll be walking you through an approach to achieve this.
Now remember, I’m a stranger on the internet, I fully advise that you go through your finances with a financial advisor to be certain of things yourself. I am not a financial professional.
Take a look in the financial mirror
The first step is to look at how much money comes in, this includes paychecks, interest on your savings accounts, etc, and note all of it down. The second step is to track how much you spend each month, and what you spend it on, you’ll likely be shocked how much your small purchases add up to.
If you’ve never done this, take a breath and take a moment to reassure yourself of why you’re doing this; this will ground you in reality, but it should also lead you to a brighter future.
For some of you, going through all of your bank and credit card statements may seem like too much work. An automated approach is to use Mint, it’s a service I personally use. You can also use expenses trackers as apps as an in-between.
Learn the concept of cashflow
Cashflow can be an intimidating term, but it’s now something I live by for a simple reason. I can easily see how much money I make, and how much I’ll have in the future. It allows me to live comfortably within my means which is more secure than living and then paying for my lifestyle later.
To understand cashflow, you have two things, assets and liabilities. Assets are all things that bring in money or can be sold to give you money. Liabilities are all the expenses you have.
When you deduct your assets from your liabilities, you have your cashflow; a good cashflow is a positive cashflow.
Putting this Knowledge to Use
From step one, you should have all of your income and expenses logged. Put these into two columns in a spreadsheet and calculate your cashflow.
When you deduct your assets from your liabilities, you have your cashflow
If it’s positive, good on you, if not, fear not.
Whether it was positive or negative, there’s room for improvement, as mentioned in my last post, the more you save, the more money you can put to work making you more money.
Cutting Back: Little things that add up
Go through your expenses and see if there is anything that you could easily cut down on, a very common one is coffee, such as going to Starbucks four times a week. If this is you, you’re likely spending $80 a month or $950 a year. you can easily cut this down by only going once a week, or instead switching to tea bags ($0.08 ea.) or instant cappuccinos ($0.60 ea.), far less than the $5 you spend in a coffee shop.
This all true for subscriptions too; on the iPhone and possibly Android, there is an easy way to save on subscriptions without cancelling. Go to the App Store, Account, Subscriptions, and click on one of you subscriptions, chances are you can select a cheaper versions of the subscription you currently have.
If you still have a negative cashflow; this means you need to cut back further. Some common areas I’ve saved in are utilities, such as phone plans, internet plans and electricity.
Cutting Back: Phone Plans
With phone plans it’s crucial to keep an eye on how much you actually use, talk time, and internet, then look at phone comparison websites to find deals for how much you need, don’t be swayed to pay slightly more by “better value” bundles, buy what you need.
Regarding contracts, always check to see if it’s better to buy the phone and plan separately. Usually it adds up to be less to pay for the phone up front with a plan, especially if you buy the phone used but in mint condition.
Also, ask around to see if anyone you know has a friend who works in a phone shop, they may be able to get you an even better deal.
Cutting Back: Internet Plans
For internet plans, it’s important not to get hooked by impressive speeds. I have many friends who spend a fortune on 600 Mb/s internet speeds and are single watching Netflix in 4K, this only needs 25 Mb/s.
The other thing to do is to look for smaller companies that only operate in your local region. Look for a reputable one and you could save around 50% for exactly the same package.
If you’re not tech savvy and are wondering what download speed you need I’ve done some breakdowns below.
- A single person household who only streams content, such as YouTube, Disney+ or Netflix; minimum 15 Mb/s, maximum 50 Mb/s.
- A two person household that only streams content, sometimes from two devices; 75 Mb/s.
- A household that occasionally downloads large files (100GB+), like video games and can wait 1-2 hours; 175 Mb/s.
- A household that frequently downloads large files (100GB+) and wants them within 30 minutes; 600 Mb/s.
A final note on internet packages, watch out for welcome packages, they may look great on first impressions but be sure to run the numbers, especially when compared against a regional internet provider.
Cutting Back: Electricity
Take a look at your past electricity bill online and try to see what days were the most expensive, what did you do on those days?
- If it was very cold meaning you had the heating on, I recommend looking into Smart Thermostats or Programmable Thermostats, this allows you to schedule your heating for when you are at home, or are sleeping.
- I’ve saved 20% by switching to Smart Thermostats as I frequently forget to turn the heating off when I leave home. These use geo-fencing to automatically turn it off and on.
- If you rent or are can’t afford to change your thermostats, setting the temperature 3-4 degrees lower saves you 10%, the same is true of air conditioning.
- If you had the lights on all day, it could be worth switching to LED lights as they use 75% less electricity and last 25x longer.
- If you live in a place that uses “off peak hours”, make the most of it for anything that uses heat or heavy motors, like clothing dryers and washers.
This still isn’t doing it?
I recommend checking out the Dave Ramsey Show or The Financial Diet on YouTube as there are likely to be many people who have been in your situation and received a plan to get through it.
For those of you seeing a positive number, especially one that is larger than 10% of their income, congrats!
If you’re wanting to learn even more, please check out my other posts below:
I also encourage you to read my four favorite books on wealth building.
- The Richest Man in Babylon
- Rich Dad, Poor Dad
- The Snowball
- Principles for Success
