How to Save Money and Increase Wealth
We all know there are two ways to increase wealth: save more and earn more.
However, saving more can be a challenge when we have the ability to purchase anything we want and have it arrive for free and at our doorstep the next day.
With increased technology, advertisements are displayed everywhere we look ( television, billboards, social media, internet, radio), and we are constantly being influenced to spend. You have probably noticed that something you searched for on the internet now shows up as an advertisement on your social media account.
On average research shows we spend about two hours per day on social media, with increased time we become more influenced to spend not just through the influence of advertisements but also through the influence of social comparisons.
These reasons could be why most Americans do not have enough money in savings. A recent study by the Federal Reserve found that 46% of Americans reported not being able to spend $400 of an emergency expense if they needed to.
Since we like to prioritize our immediate needs, saving for an unexpected event or even the future can be difficult. Read more about why most people delay saving for retirement.
In a previous post we discussed the difference between assets and liabilities and why American's spend more on liabilities. If you want to read more about that, read our post on How to Become Rich
One measure of wealth that can influence savings is net worth.
Net worth is a calculation of what you own minus what you owe.
Use this CNN Calculator to compare your net worth against those with the same age and income.
Develop a goal and make it a habit to track your net worth frequently such as monthly. This will allow you to stay motivated and focused.
Rich people focus on their net worth. Poor people focus on their working income.
-T. Harv Eker
How to save money and increase wealth:
Pay yourself first
This is listed as #1 because it is the most important and easiest way to save money. By automating your finances and automatically paying a percentage to yourself, you are guaranteed to save money. If you put off saving until you have paid all of your expenses and made some purchases, you are more likely to spend money on what you may not need and save less.
Read more on the importance of Financial Habits.
Pack your lunch
A few dollars here and there during the workweek may not seem significant but on average, individuals who eat out an average of 3x per week for lunch spend about $1700 per year ($140 per month). If this same amount were sent to a retirement account, it would total $10,000 after 5 years (with 6% annual yield).
However, without a plan the chances of actually taking lunch to work are very low. If you don't have something prepared by the morning, you are much more likely to leave empty handed. Spend some time on the weekend meal prepping, or make extra dinner that you can take for lunch the next day. Purchase snacks that are easy to grab and go.
There are tons of videos with great meal and snack ideas, our favorites are Domestic Geek and Mind Over Munch.
The idea isn't to completely cut out buying your lunch. Drastic measures will not lead to results! Start small by bringing lunch 2x per week, then 3x, etc. If there are days you are buying both breakfast and lunch, consider which one you are willing to cut down on and start there.
Allow yourself lunch once per week or on a stressful day. If Starbucks is your guilty pleasure, allow yourself fewer drinks per week (such as on Friday to end the week, during a long work-day or on weekends).
Make a grocery list
We know shopping on an empty stomach will most likely result in leaving with an excess amount of food. Buying a lot of food not only results in spending more, it results in wasting more. Americans throw out billions of dollars in food each year!
Plan grocery shopping after a meal and make a shopping list of the items you need. The great thing about meal planning blogs/videos is that many include a list of the ingredients, making it easy to print and highlight the items you need.
Another idea is to place a magnetic list on your fridge and over time, jot down the items you are running low on so that the list is already completed by the time you need to go to the store.
If you are likely to forget a list at home, apps such as Bring! allow you to make a list on your phone and share it with another person.
Purchase what you need for less
Today, there are subscriptions for nearly everything (food, clothes, wine, products, etc). Consider canceling subscriptions for things you don't need and find other ways to pay less for things you use. For example, many people today can access their favorite shows on Hulu. Hulu costs $7.99 per month, a much lower amount than any cable provider!
If you are an Amazon Prime member, consider purchasing household items through their monthly subscription to save an extra 15%. You can set the frequency of each item by month and skip the purchase if you still don't need it when the time comes.
If you make an online purchase, use Ebates! Ebates is an easy way to get rebates for your purchases. Link Ebates to your search bar so you don't forget to use it, it will pop up when you open a participating site and allow you to activate your cash back.
Sites like Honey also allow you to easily find and apply the best coupon codes online. Link it to your search bar and it will pop-up automatically when you go to make a purchase.
Being mindful means being present and aware of your thoughts, emotions, and behavior. Spending mindfully therefore means being aware of how you are feeling and thinking when you are spending.
Learn more about the Psychology of Spending and how you can take control.
Unless it's something you absolutely need, wait before spending. Place an online item into your shopping cart and wait a few days before purchasing it. Taking time to think about it will lead to more mindful spending!
Likewise, make simple purchases more difficult. If you find yourself purchasing things on sites such as Amazon just for the convenience, delete the app on your phone.
For more frugal tips, check out our post 3 easy steps for frugality beginners!