10 powerful saving tips which have changed my life for the better, without taking away anything from my lifestyle
Most people writing about saving tips sound too harsh.
Sell your car, move into a smaller house, you can’t afford to go on holiday are just the common statements I heard all the time. This is the reason I believe people never take the first step forward a new saving lifestyle. It’s too hard.
The good news is that you don’t have to prohibit yourself from buying things that you want, but only be flexible with your thinking process and see things from a different financial point of view.
Change our habits and financial situation, required bravery and an open mind to a new world of possibilities. It’s easy to say, but hard to achieve if we don’t know where to start.
This is the reason, I wrote down 10 changes that I personally use which have helped me to save 80% of my salary for years.
Was it hard? No
Did I have a miserable lifestyle? No. I was living a five stars lifestyle eating fantastic food, residing in a house with sea view and enjoy the tropical weather.
I create my opportunities and habits in saving my way to financial freedom at the age of 31.
Please, read the below points and let me know your thoughts in the comment below. If something isn’t clear, just write to me. I’m here to help.
1# Getting something on sale is a great feeling,
but it can mess with your mind
My father was and still is a fanatic of promotion and special offers when shopping at the supermarket.
I still remember when my dad used to buy Barilla Spaghetti in bulk, something like 30 Kg. (in average a person eat 130 gr. of spaghetti per day in Italy, so 30 Kg will feed you for 230 days) because they were on special offer saving 10 cents of Euro per Kg. My father saved 3 Euros.
My stepfather instead, couldn’t bother with the supermarket discounts and offers, but he used to spend a significant amount of time on big item tickets.
This experience at the age of 8, provides me an inside of behavioral economics. I realized that saving 5% on a 10.000 Euro item is not at all like saving 5% on a 1 Euro item.
Look at products with money saving value, not a percentage of what you’re buying.
But to process decision problems at different scales, the brain tends to normalize things, so the two cases appear similar.
Ever since I learn this behavioral economic, I started spending less time worrying about saving 10 cents on spaghetti, instead using my valuable time thinking about big tickets purchase, like a car.
Imagine the amount of spaghetti you can get with 500 Euro saved on a car, and yet I see people who spend lots of time on grocery coupon clipping but never stop to consider whether they could move to a cheaper apartment, drive cheaper cars, etc.
2# Having a clue about your financial health and spending habits
Did you ever have a look at a company statements in your life? For
For the you who don’t invest in market stock, a company statement revealed the financial health of a business. Same goes with our personal finances.
Few simple steps every month (I usually do on the last day of the month) help to get an idea about our finances:
- Income; All the money physically go into your bank account and pocket
- Outgoing; All the money physically leave in your bank account and pocket
- Assets; Property own with a value
- Liabilities; The money you own to others
This’ll give you a clear idea about your financial situation, so you can be proactive and change things for the better. Get something liketo gather all your financial data and look over it.
Where are the biggest advantages to being had?
When you are in the “know”, you can take action to improve your financial situation.
For example, by aggregating all your monthly expenses, you might notice that parking ticket that cost you only 2 Euro per day, at the end of the month is a whopping 50 Euro. Of course, the parking is near your office, and it is convenient, plus you are always late.
What about you change your habit?
Wake up 10 minutes earlier and park the car a bit more far away, so you avoid paying the 2 Euros. Simple.
Imagine what you can do with that 50 Euros saved.
If you invest 50 Euros per month for the next 30 years at 6%, you will end up with 50.225 Euro. That will pay for your dream around the world tour in your retirement years.
I can’t stop to stress the importance in getting a clear idea about your financial health; it will help you in taking better decisions for your money. I like the “An Unconventional Look At Personal Finances” by Bassam Salem, where he approach the net worth of a person with a set of financial measures not typical to the world of finance. I use his system to calculate my yearly financial health and re-balance my goals.
3# Review your periodical payments
We all have contracts and periodic payments; internet cable, TV cable, mobile phone contract, mortgage, etc.
When you first sign up for a contract, a mere 20 Euros difference per month will not bother you, but when calculated for the whole length of the contract, the saving can be huge.
Tom and John want to buy a new cell phone, and the shop has two options; 80 Euro or 100 Euro monthly contract for 2 years. The phone is the same, but the most expensive contract has free internet.
Tom take the 100 Euro option because it is only 20 euro per month more, no big deal.
John instead goes for the another option because he calculates that over the 2 years contract, he will save 480 Euro. He can get free WiFi around town anyway.
This is a small contract, what about refinance your house mortgage? What a 1% less on your loan can save you over 20 years.
Let’s say you are paying down your 20 years mortgage of 100.000 Euro at 5%. Recently the central bank reduced the interest rate and you can refinance at 4%. In 20 years, what would be your saving?
TOTAL SAVING; 13.000 EURO
If I would be a sale man, I would tell you, sign with me and I can give you a brand new car with the 5% package. Would you buy it?
4# Don’t buy poor quality items or overpriced one
We tend to pick the lowest cost of the items because we feel that we are saving money.
I have found that being too stingy has often led me to buy minor things that later have to be replaced, ending up paying more than buying that high range stuff.
Now, I always go for the second cheapest or second best item, and there are diminishing marginal quality returns to paying more.
I have a 100 Euro office chair that, unlike the 30 Euro one I considered briefly, does not break after a month. I think that is worth paying three times as much for. But you can easily blow 1.000 Euro for the top of the range chair. Is that chair 10 times as good as mine?
5# Debts, Saving and Investments
Get that credit card debt close for good. Use your saving or take out some money from your investment’s portfolio to clear that 20% yearly charge from your credit card company.
Your investments will never yield so high, so does make a lot of sense to close down your credit card. Make sure to set automatic payments from your bank account so you don’t get charge unnecessary fees.
Long time you are thinking to save some money for your retirement but always seems some unexpected payment get into the way. Stop procrastinating, will cost your future financial freedom.
The early you start to save for retirement, the less money and effort are required from you. Get into the habit of saving at least 10% of your income in your early 20’s, and you will be grateful in your 50’s for that decision.
Nothing is stronger than compounding your early year of saving.
7# Turn your back to coupons and special offers
The problem with all these offers and coupons, we have the temptation to buy things which we wouldn’t otherwise have bought just because they are, or seem to be, cheaper than they normally are.
Coupons are the worst, and they take a lot of your energy and time to collect all the points to get some free plate that you could have bought for few Euros.
But… not all the offers are bad.
If you understand the economics behind these things, it becomes easier to spot the cases where you can save some money. For example, if you notice an item that long you wanted just went on clearance promotion because is getting replaced with a newer model, get it.
I love food (I used to be a chef), and recently I change my family habit of eating out of pick hours because offer restaurant discount up to 50% at non-peak times. Is it worth it to eat lunch at 3 pm instead of 1 pm for the half of price? I even get served faster because not many diners in the restaurant.
I use a mobile application called Eatigo present in Singapore and Thailand. In the USA is popular Groupon that offers a broad range of deals from hairdresser to electronics. Just investigate what is available in your area, and start saving.
Another case of fluctuating demand is seasonality. You can save a lot of money buying things just after Christmas period or clothes on season change.
8# Plan your taxes
This can be a long point depending where you are resident and where your business is operating.
Most of the Asia have relatively low tax compared to Europe or the most expensive country in the world, USA.
There is all the sort of rules and regulations in each country that is worth to get in contact with an accountant to sort out your taxes and get some valuable advice before going for big purchases as buying a house or a car.
Investments are tricky as well because if you sell your market share and make a profit, you are subject to capital taxes in Europe and America. Instead, in Asia, there aren’t capital gain taxes on the market stock, and this is good news if you are a trader instead of a long-term investor.
I know taxes are boring, but make sure to learn as much as you can because you can save thousands of Euros per year.
While working for international companies around the world, I used to make contracts with a tax-free salary just to avoid all the headaches that come with taxes and put it on the employer.
9# Buy used
There are so many people out there that change cars or appliances just because the new model arrived. I always took advantage of this and bought four second-hand cars in my life saving me thousands of Euro that I could invest in somewhere else.
Keep in mind that a brand new car depreciates much faster than a second-hand one, especially in the first year averaging a whopping 20% depreciation for most models.
I used to buy cars in their 2-3 years because they were highly discounted and with an average of 10.000 km on the clock, almost new. I have got a full apartment of used items; fridge, TV, furniture, bed and much more.
I never buy junk, but quality items at high discounted price. The wealthy people have excellent stuff but the bad habit to change it too often, that is always good news for me.
Things like eBay and Craigslist have vastly improved the liquidity and efficiency of used goods markets, but be careful to check you’re getting a good deal.
If you are unsure about the items, just ask the owner why is selling. Don’t be afraid to get cheated, buy new is a much worst financial experience.
10# Invest in you
This is the most important habit of all 10. It is important to invest in your knowledge and take the time to learn financial skills essential for your future success and retire early.
As I said in other posts, we shouldn’t work more than necessary.
I spend every week 15 hours in studying economic and personal finance, plus another 10 hours in posting to this website to pass on my knowledge for other to benefit.
What has worked until today, might not work tomorrow or come up a better way of doing things.
You are the most important asset, so keep investing in yourself.
What other ways are you using daily to save money? Please share so we can learn from others experiences.