Saving is one of the most basic, yet most important pieces of financial discipline that you can ever learn. While it’s an easy principle to understand – put away a portion of your income into an account for future use – it’s a skill that is acquired only through practical application, not theoretical understanding. As a result, many people struggle and later in life find themselves greatly over-extended. They are then without savings, or simply unable to learn how to save properly. Below, we’ve put together some suggestions to help people better learn how to save by cutting back on living costs.
Learning to budget is one of the most important aspects of saving, but many people find the concept overwhelming. It doesn’t need to be this way, of course. There a large number of services dedicated to helping people learn to budget, both online and in the real world.
Whether your budget is a highly detailed schematic or a loose set of scribbles on a page doesn’t really matter. What’s important is that it works for you and your family’s finances. You need to have at least a rough idea of where your income is being spent – and whether your outgoings are greater than your income.
Where can you cut back?
Once you’ve written down your expenditure, you need to take a few steps back and look at your outgoing expenses. Are there areas in which you could cut back? Takeaway foods, entertainment, power and gas are just some of the areas that could be raising your expenses considerably. Make sure you look at areas where you’re overspending, and where you’re willing to cut back. Here are some other potential areas where you may be able to spend less:
- Food shopping – shop around different supermarkets, look at different brands and keep an eye out for catalogue specials.
- DVDs – Rather than buying everything that’s newly released, rent instead.
- Mortgage repayments – depending on the current interest rates, you may be able to make lower repayments temporarily to aid with saving, though this should be used with caution.
- Utilities – if you feel you’re paying too much with your current provider, investigate other providers too. It may even give you some negotiating power with your current provider.
The most important part of learning to save is actually doing it! Each pay period, you need to set aside a certain amount of money to allocate to your savings. Whether it’s a percentage or a fixed amount is entirely up to you, but work it out as part of your budget. A handy technique to make sure that you are saving is to make sure that you “pay yourself” before you pay creditors. If you take the opposite approach and wait until you have paid everyone else, it’s almost certain that you will not have any left over for savings!
Don’t Touch It!
It is worthwhile setting up some form of primarily untouchable account (e.g. a high interest account) to reduce temptation to “dip in” to your savings. Of course, it’s quite possible that there will be circumstances where you do need to use your savings, but these should be restricted to emergencies only. Make sure that it really is an emergency though, and not just something that could be avoided through better planning in your everyday budget.
Saving is a good way of ensuring that you have spare funds if and when they do become necessary. It’s also a valuable technique for purchasing big-ticket items – this can be hard to do in a world, which offers instant gratification through credit cards and financing schemes, but it is a technique that will provide a greater understanding of the true value of what is being bought.