Increasing wealth, or net worth, is fairly simple on the surface: increase savings. Most workings stiffs like me can do this by either increasing income or decreasing expenses (or both). When most people get a raise, or promotion, or get an inheritance, they simply raise their standard of living. Maybe move to a bigger house. Get nicer cars. Go on fancier vacations. IPads for Everyone! Instead of seeking out that additional 1% or 2% that could go into savings.
I’m not going to write about increasing income, but more about how to set up some thrifty ideas that can help with increasing that savings rate just a little more.
1) First, look at your budget, and see where concessions can be made. Maybe you go out to eat twice a week. Maybe you’re paying 5% interest still on a home mortgage. Maybe you still have cable. Maybe you’re an Amazon book hound. Then, roll that all up and make it a goal to save $X amount more per month.
2) After you’ve committed to saving that much more per month, set up an outside account. We personally use Capital One 360 (formerly ING), an on-line account that pays as of 2015, 0.75%. There are other companies that pay more, but getting an outside account away from your regular checking/savings bricks and mortar bank is my strong recommendation. Then, set up an automatic transfer into your new on-line account. Basically, the money is gone before you even see it. We set ours to correspond with pay days. The good thing about this initially during this trial run is that if you end up too aggressive, you’ve still got the money to transfer back to bricks and mortar if you run into trouble. But setting it and forgetting it is the way to go.
3) Since you are now forced to live on less money, you can revisit Item 1 above. Here are some things I would recommend implementing (right out of my book):
- Cut Cable (and get an antenna) – Costs are so crazy for cable, and besides the incessant consumer advertising that encourages even more spending, it is a major time sink. For the price of $8 a month, Netflix or Hulu or other services can provide more entertainment than you can shake a stick at. And get an indoor antenna ($40 at Amazon, we have two of these highly rated Leaf 30’s and are very happy with them) for your network television. A handful of times a year, if you’re a sports fan, you will find yourself needing cable for NCAA basketball or maybe Monday Night Football, but that’s a small price to pay for the huge reduction in costs from cable.
- Use the library – some of your taxes likely go to supporting your local library system. Many are part of a conglomerate teamed together to swap books, CDs, DVDs, Audiobooks, magazines, video games, and even Blu Rays between libraries. We go nuts at the library and if we had to buy or even rent all the multimedia I check out for free there every year, it would cost well above $1,000. It’s a great way to learn about nearly anything for free (less any overdue fees). So get down there and get yourself a card, learn how to use the reservation system, and save some dough.
- Coffee or booze – Doing it at home will save you bunches. Even gas station coffee at a $1.19 a day adds up to nearly $900 a year if you and your spouse both have a caffeine addiction like me and Holly do. A $9 two-pound bag of Starbucks roasted Costco coffee lasts us probably close to a month, saving us a difference of $775 a year. Booze too has incredible markup at the bar or restaurant. If you want to imbibe, you are much better doing it on your own or choosing to refrain to some extent in social situations if you are money concious.
- Drink water, tap that is: Instead of soft drinks, bring your water bottle to work and fill it up as often as you need to. Not only is it healthier, but it is free. And tap water is usually fine, so don’t get suckered into paying for water when it is free.
- Bring your own lunch – If you eat out for lunch, start bringing in your own. Make it the night before, or make larger dinners so you have leftovers. The cost savings can be signficant. If there’s a $4 per meal difference between homemade versus purchased lunch, over a course of a 50 week work year, that’s a $1,000.
- Cut your own hair – yes, we make enough money for this not to be an issue, but I still cut my own hair. It’s faster, easier, and free (with a paid off clippers). This helps balance my wife’s hair styling/coloring (to keep the gray out, and her looking hot to me), which can be expensive. Figure with tip, I’m at least saving a few hundred dollars a year (since I wouldn’t go to Great Clips but to an actual stylist when I would have my hair cut in the past).
- Thrift stores, your friend – It takes some time, but you can often find really nice, gently warn or even new clothes at thrift stores. About half of Holly and my wardrobe is used I would estimate. I found soccer cleats for Birdsnest (who continues to grow like a weed) for $2.25 that were in great shape. It’s go-to shopping when we need wardrobe updates, art, furniture, or board games.
- Cell Phone – We are fortunate in that both my wife and I get at least partial reimbursement for our phones since we’re expected to use them for work, but I can’t imagine having to pay for full price of smart phone family plan without that. While I’m not an affiliate (yet), you can use some cool ways to save TONS of money on this by using more of a wireless system (if using them primarily at home or work) that does use cellular when needed. Republic Wireless for example is one way, charging $10/month for unlimited talk/text over wireless and cell, and unlimited data over wifi. I hope to write more about this another time, but something to consider if you’re evaluating budget items.
Those are a few of the frugal things I recommend. In addition, the bigger things like refinancing the house (which we did this year, saving us about $3,600 per year in the short term, and paying MUCH less interest in the long term) and shopping for car insurance (something we’re in the process of doing now, which will save us about $600 per year) also add up.
In general, we try to balance living now and saving for the future. We use a lot of free resources available to us (local parks, local free pool, home, family or neighbor time instead of paid activities and birthday parties). Our house is the smallest on the block (at a nice sized 2,300 SF, perfect without being wasteful). We pay any car purchases off quickly (mine was paid in 18 months, Holly’s new minivan will be 3 years or sooner, which isn’t cash but the best we can do, and at 0.9% financing is still a smart decision), then drive them for 10+ years. Even the sports or activities the kids and us are into are evaluated by their cost. For example, instead of paying for gym membership, we built our own gym (and has been paid off for years now). Instead of paying $200 per session per kid for swim team (which the kids really liked, but weren’t naturally talented at), we tried other sports that cost maybe 20% of that, and the kids love as much. We’ve traded services with others to get them free piano lessons. We co-op flexible work hours with two other neighbor families with kids similar in age to us to swap afterschool care and reduce all our expenses.
So you look at all of the above, and try to get an estimate on what that means to your bottom line, and sock that found money away to that new separate account automatically. What you end up doing with it is a conversation for another day. We’ve used this method to build a 3-month emergency fund, vacation fund, car fund, and investing fund. When we have enough in the investing fund, it can go toward a Roth IRA, or even regular investing account.
No matter if you’re well off or not, there’s likely fat in your budget. To build wealth faster, find where you can cut the fat that doesn’t impact life happiness. That’s an individual thing, and often compromises will be made between husband, wife, and kids, which is typical between enjoying today and saving for tomorrow. But when you do find savings somewhere, make sure you set yourself up to actual save that money, and not just squander it on something else. Good luck in reaching your goals!