This post arose from a question about saving money someone asked through the Ask Ken button on the blog menu bar.
It is the first of such and I am super excited to be answering it. Feel free to ask me questions on that button too.
The question was – “What is your secret to saving money?”
Actively saving money is completely achievable and for me, it has really become a part of how I do family life, so it doesn't feel like a chore.
This is a far cry from how life was a few years ago before I met my wife, Mary. I was pretty much in the spending camp and always felt I needed to buy something new.
The feeling I experienced was usually short-lived and life felt like I was in a revolving wheel, often ending with panic each month as I eagerly anticipated payday yet again.
What has become clear to me over time is that saving money is an act of a higher order.
The simple act of being able to manage small amounts of money is often an indicator that one can manage a tonne more.
Saving money is clearly important, but why is it important beyond the need to have a safety net?
There are many considerations, but here is one I want to put on the spotlight today:
[yellowbar]There is an inverse relationship between your savings rate and your retirement age i.e. the higher your savings rate, the lower your compulsory working years.[/yellowbar]
This bit of maths works because of the great power of compounding. i.e. the more money you're able to save (and invest), the more those monies start earning money by themselves; and the earnings on those earnings start to earn money too.
For example, a £100 or £200 saving in your monthly expenses, if invested and compounding each month, would result in £50,754 or £101,507 respectively in 20 years' time assuming a 7% annual return.
If you think about this, it becomes clear that cutting your spending rate is much more powerful than increasing your income.
This is because every permanent drop in your spending has a powerful double effect:
- It increases the amount of money you have left over to save (and invest) each month.
- It permanently decreases the amount you will need every month for the rest of your life.
Achieving a permanent drop in your monthly spending requires some discipline and a lifestyle tweak.
Minimalism and frugality are lifestyles I subscribe to and are big themes on the path to Financial Independence, which is a subject you should become fanatical about if not already.
Here are some of my practical secrets to saving money. —
1. Intention and Design
The only reason we've adjusted our lifestyle and saving money intentionally is that we're working towards a clearly defined plan.
I had previously introduced you to the Secret Sauce for Winning and the “POST” acronym.
Here it is in action at a high-level re saving money:
To enhance our Personal Freedoms as a family.
To achieve Financial Independence much sooner and have optional Early Retirement by year X.
This topic of Financial Independence is of such great importance that more and more people need to practically aim for and believe it's an achievable goal for them.
I am documenting all my learning, process and successes into a thoroughly practical “Road Map to Financial Independence course” that I will host on Teachable. Feel free to join the waiting list below:
1) Minimalism & Joyful Frugality (strand 1 – covered below)
2) Income maximisation and diversification (strand 2)
Below I introduce you to some of what we are doing to execute (strand 1) above.
This list isn't exhaustive and we are always optimising :
2. I pay myself first each month
This is before I pay any bills. Paying myself first means money moves straight to my savings and investment accounts and gets to work. This way I actually get to see the fruits of my graft.
3. I automate everything
The same day I get paid, a designated percentage goes to Savings, Investing, Pensions and Giving accounts; ensuring I don't ever forget to do this bit of necessary admin.
4. I budget like crazy
Note that a Budget is like a compass. It only exists to lead you to a specific goal (in this case, saving money).
I cover budgeting in a bit more detail on 15 Tips to Help You Stick to Your budget
5. I put controls in place to help me stick to my budget
For example, I do grocery shopping only by cash and not cards. I have 3 no expense days in a week and I stick to them religiously.
6. My wife is my accountability partner
I run all potential expenses past my wife and she can veto any she chooses. And she does!
This way we have total transparency too. We don’t have the concept of Your money vs My money at home. It all goes into one pot and we make decisions about where it all goes as stewards.
7. I use designated bank accounts
This way I transfer the exact amounts I need into each account depending on their purpose. So we have one for the emergency fund, holidays, recurring bills etc.
8. I do home cooked meals for lunch
This keeps me healthy and within budget. It also means I have to be better at planning ahead, so we do meal plans on Sundays on the way back from church and then do food shopping to go with it.
On the same day, we cook certain meals that get frozen, with notes for what days in the week we eat them. Some meals we cook the night before and then take them into work.
I save circa £100/month (or £1,200 annually)
9. I have planned socials
I aim to meet one friend a week. I keep it to that and decline all others or have a call with them instead. This helps cap out my expenses on socials.
Even when I meet friends, we don’t always have meals. We may do a coffee/tea instead.
I save circa £40/month (or £480 annually)
10. I drive an electric car
By far one of the best decisions we have ever made. Love, Love our super clean electric car!
Driving costs are down from £250/month to £30/month because our electricity costs are fixed.
And this is before the lower depreciation cost of our cheaper Nissan Leaf is factored in compared to the guzzling Audi we previously drove.
On top of that, we pay no congestion charge when we visit Central London for the museums and theatres, plus there is no car tax (saving £250 a year) and free parking in central London for up to 4 hours!
I totally recommend an electric car. There is now more variety too and at different price points.
I save circa £240/month (or £2,880 annually) or £323/month (or £3,880 annually) with depreciation included.
11. I stopped eating red meat
This has been fabulous for my health (primary reason) as I am more energetic, but I also noticed a massive positive impact on our financials.
I save circa £40/month (or £480 annually)
12. I order tap water at restaurants
Why waste money on drinks that I know are terrible for my health? I order a jug of tap water with lemon in it, and that comes for Free.
Once in a while, I do ofcourse buy a drink but this is usually when there is some sort of celebration.
I save circa £15/month (or £180 annually)
13. No fancy clothing
I avoid shopping malls not only because I don’t want to throw money down the drain but also because shopping is stressful. Some of you will disagree and I hope you do 🙂
Don’t get me wrong, I do visit malls for other reasons such as having socials or taking my kids to pick up a book a month (something we do as a family).
As for clothes, I wear plain blacks, whites, and greys. This way I don’t have to think too much about designer gear.
Interestingly, Mary manages to recycle alot of her clothes and maybe shops 3 times a year max. With little children, shopping for clothing is really the last thing on our minds.
I save circa £30/month (or £360 annually)
14. I avoid phone upgrades
The culture of today is to get the latest iPhone via an upgrade as soon as they get released. Personally, I think that’s totally nuts :).
Instead, I move onto a SIM only deal when my contract runs out and I use the same phone for at least 3 years before I upgrade.
I save circa £24/month (or £288 annually or £864 over 3 years).
15. I don’t have a gym membership
I love walking and you can usually catch me walking the scenic route daily from Charing Cross to Marylebone whilst avoiding London's enthusiastic tourists.
As such, I clock up 10,000 – 15,000 walking steps a day (as you can see below, about 2.4m steps or 1,236 miles in one year) and typically do a 5km run every other week.
If the weather is great, I cycle too.
I save circa £50/month (or £600 annually)
16. I shop online
Our non-grocery shopping is done online and is driven by a list and a budget. I have Amazon Prime, which helps with super fast delivery and savings on delivery costs.
I save circa £10/month (or £120 annually)
17. I rock Aldi
We do most of our grocery shopping at Aldi. This is very deliberate and the value is amazing. The fruits at Aldi is way better than all the other major supermarkets.
In addition, we can buy more items below £2/piece at Aldi compared to all the others.
I save circa £30/month (or £360 annually)
I have gone into detail in some of these areas because I want you to see what is possible with a lifestyle change.
These marginal gains through savings today in various areas of your financial life can add up to be very significant and as such play a very important role in your future.
Our total savings above come to £662 a month or £7,944 per annum. If you grossed this up for tax, it is equivalent to circa £13,000 of gross income.
These savings are part of what we then plow into our pensions and our children's investment accounts every month with a big focus on winning tomorrow today.
[redbar]As an illustration, if the £662/month saved above is invested in an environment that generates 7% per annum compounding, this will result in £335,989 over the next 20 years.[/redbar]
This easily funds university tuition or the first deposits on homes for our sons or goes towards retirement or even towards supporting causes we deeply care about.
Either way, such circumstances are good and create optionality; and options have value.
What are your thoughts? What are some of your money saving secrets? Please comment below.
Do please share this post if you found it useful, and remember, in all things be thankful and Seek Joy.