It’s never too late to establish some good financial habits and secure your finances. The single smartest financial habit to adopt is to save 15% to 20% of your income each month. This is the number that will ensure you are never caught unprepared and are building a strong financial future.
When providing financial coaching and in my money book and blog, I’ve gone on record that most people, barring job loss or major unexpected bills, can save 15% or more of their take-home pay. I’m often challenged on this. “That’s not possible for me”, people tend to say. Then we get into their numbers and the truth emerges that saving at least 15% is actually a very do-able thing.
There many ways to reach this goal. Here are my 5 favorites, plus a rough estimate of how much I think each strategy can save someone with an annual income of around $50,000:
My 5 Favorite Strategies for Getting the Job Done
1. Always Ask for a Lower Price ($500-1,000/yr)
Always ask for a better price. Two-thirds of the time people ask for a better price they get one. 54% who ask for a lower doctor bill get one. Unfortunately, over 70% of the time consumers simply don’t ask. Everyone can negotiate a better price for cell phone plans, bank account fees, credit card interest rates, furniture, appliances, costs for hotels and airfare, and much more. It’s simple. Here are my blogs that explain what to do:
What Most People Won’t Do to Save Money
Money Saving Opportunity of the Year
2. Buy Your Cars Smart ($1500-2500/yr, or more)
Most of us think we already know how to buy a car smart. Well I thought that too until I found a few years ago that I’d blown over $300,000 in my life buying my cars the wrong way! We’re talking some big money here, and anyone can do it if they know what to do. Here is some information to get you started.
- For starters, never buy your cars new. This one move alone is likely to save you thousands a year. For more on this subject here’s a quick read to fill you in: More Destructive Car Buying Advice
- Arrange your own financing and know the value of your current car before you start to shop. Never finance though the dealer because it’ll almost always cost you a lot more.
- Don’t purchase an unnecessarily expensive car for its image.
- Don’t buy a gas guzzler. If you already own one consider getting rid of it in favor of a reasonably fuel-efficient model.
- If you really want to know the game you’re up against and how to win it, I highly recommend buying and reading Don’t Get Taken Every Time by Remar Sutton. You can get a used copy for about $5 or so and it’ll be $5 well spent. By the way I don’t know this guy, but I sure know what he has to offer. Quite simply, he’s “Da Man” when it comes to car buying.
- No car leasing unless what you read in Remar’s book convinces you, for sure, that you can win by doing so and are going about it the right way. For most people leasing is not a good option.
- The Internet has greatly improved the process of buying and selling a used car, so use it to the fullest.
3. Don’t Buy It if You Didn’t Plan on It ($2000+/yr)
Why do we buy what we buy? When is the last time you picked something up you wanted to buy, stopped, and asked yourself… What is the real reason I’m buying this? Are you making that purchase based on your priorities? Or, are you being influenced by somebody else’s? Advertisers spend billions a year and are extremely good at getting consumers to spend their money where they hadn’t plan to. So how do you see to it that they don’t “get” you? The answer is here:
Did I Really Want That? Why We Buy What We Don’t Need
4. Know the Annual Cost of Your Purchases ($500-1,500)
To understand the real impact of your spending choices, always look at the cost over a year, not just at the cost today. Let’s say you spend $4.50 for a fancy coffee, or $10 to eat lunch out five days a week. Those may seem like small expenses, but the annual costs are $1,125 and $2,500, respectively. That’s $1,875 and $4,165 before taxes; $142,000 and $318,000 in thirty years at a 6% investment return. This is what you are actually trading away with those small purchases. This doesn’t necessarily mean you shouldn’t spend that money. It’s your life and your choices. Just be sure you take the time to calculate the annual cost and fully understand and are okay with the true size of the trade involved in your purchase.
5. Simplify Your Life (Priceless)
If you are like most people, you probably can benefit greatly from simplifying your life. If and when you do, you will surely find that the financial rewards can amount to some pretty terrific savings over time. Even better yet will be the improvement in quality of life you’ll likely experience. Simplifying your life doesn’t necessarily mean doing without, but living a less stressful, more balanced life. It means having more time for the things that really do end up making you happier and less time juggling the many costly and time consuming things that can fill your life.
For more on specific actions to take, check out this short article from Zenhabits.net by Mike Elgan, Simple Living Manifesto: 72 Ideas to Simplify Your Life. If you would like more information and ideas yet, the book Simplify Your Life by Elaine St. James does a good job of explaining the value of simplifying and provides a lot of good, practical examples of how to approach it.
If you look around at who is happy with the role that money plays in their lives and who is not you’ll realize that for most people it really isn’t how much they make that matters but what they do with it that counts. You’ll also see, again and again, that one of the cornerstones of lasting success is to live below your means.
Saving a large portion of your income truly is a guaranteed road to financial success. Take the 5 steps listed above and begin saving least 15% of your money. Start today. What you will find is that nothing can replace the secure feeling of knowing that you are being smart about your finances and will always have the resources you need.