Often we get caught up in the now and neglect to think ahead to our future financial requirements. However, those of us who are prepared to invest time and effort into long-term financial planning will be better equipped to ride out any rocky financial waters and better placed to realise their dreams. A vital cornerstone of financial planning is learning to save money and, in this article, I'll outline seven tips that can help you to make the most of your money.
1. Get into the habit of monitoring your finances:
How often do you really analyse how much money you're spending and what you're spending it on? For many of us, the answer is rarely. Maybe we check our balance at the cash machine to make sure that we're not going to go overdrawn but, for many people, that is the extent of any monitoring that we do. It is very difficult, however, to make meaningful strides towards saving money if you're not aware of how much money is in your account and what your regular outgoings are compared to the income coming in.
The easiest way to monitor your spending is to look at your bank statements and, with the advent of Internet banking, you can now call up your last three months transactions at the click of a mouse. Going through your bank statement line by line might initially seem a little laborious, however it can bring very big rewards. You will likely be amazed at how much you are spending on certain things and it should help you identify spending categories that you can target reductions in.
2. Budgeting set yourself monthly targets:
Having analysed your spending patterns, the next stage is to target some cost savings. We'll get on shortly to some of the main expenses that can be targeted but let's first cover off how budgeting works and the importance of it.
Budgeting is the mechanism to ensure that you adhere to that old adage of living within your means. A starting point for any budget is to know how much income you have coming into your bank account each month. You should then set yourself a target of how much you are going to spend. Hopefully, your target will be less than the income coming in and this will mean that you will have some disposable income left over that you can place into a savings account or invest.
Often, in budgeting, it is useful to split your spending into various spend categories. Some examples might include groceries, gas and electricity, entertainment, etc. Having done this, you may then set yourself targets for each of these categories. Doing so creates a discipline and, as long as you remember to monitor progress against your targets, it should significantly increase your chances of saving more money.
3. Make sure your utility bills are competitive:
Gas bills, electricity bills and telephone bills often are significant components of our monthly expenditure. One of the cardinal sins that we make, though, is not checking that we are getting a good deal. There can be significant differences between the price tariffs offered by various competing companies, so you may be able to trim quite a large sum off your monthly outgoings if you switch to better offers.
4. Make sure your mortgage is competitive:
For those of us who have a mortgage, the chances are that your mortgage is your biggest single monthly expense. It seems obvious, therefore, that we would all devote time to ensuring that we're getting a good deal on our mortgage. The reality, however, is that many mortgage holders rarely check to see what interest rate they're paying and end up paying a lot more over the course of the mortgage than they would have done if they had switched to a better deal.
Remember, too, that paying lump sums into your mortgage can help you pay off the mortgage earlier and may save you a lot of money (that you would have paid in interest) over the course of the mortgage. That is an example, therefore, where additional spending now can help you achieve significant longer-term savings.
5. Save on groceries:
In addition to utility bills and your mortgage, groceries will also account for a significant proportion of your regular expenditure. It's obviously a necessity that we buy food and drink but they offer another sizeable opportunity to reduce costs and save money. There are a great variety of ways that you can save money on groceries (and you'll find specific articles on this topic on Helium) but here's a quick run-down on some of them:
- Make use of coupons and loyalty cards
- Utilise low cost supermarkets rather than more expensive stores
- Buy own brand products rather than branded equivalents.
- Make use of two for the price of one (and other) deals.
- Make the most of the food that you buy. Often, we are very wasteful and end up throwing out up to a third of what we buy.
Saving money on groceries doesn't mean that you have to risk your family's health. It's simply a case of being more smart about our shopping and taking advantage of the offers that are available but which we may not be currently using.
6. Make saving money an attitude:
People who are successful in saving money have one thing in common. They have made saving money an important part of their life. They don't have to have a reminder to check their finances once per month; it's just something that they do as a matter of course. There are probably some people who are more naturally suited to being savers than others but it is an attitude that we can all learn to incorporate into our lives and it will bring its rewards.
An example of how this behaviour reveals itself is that the person, when considering a purchase decision, will always think is this the best deal that I can get and is this a good use of my money?' It doesn't mean that you can't occasionally splash out on luxury and/or frivolous items; however it will mean that you are not forever falling foul of impulse purchases that unnecessarily eat into our bank account.
7. Hammer any existing debt:
It's hard to save money if you're having to service debt that you've accumulated on credit cards, overdrafts and personal loans. These credit facilities can be useful but an over reliance on debt will severely impact upon your ability to save money and make it grow for your future financial needs.
Summary:
It doesn't matter whether we're living in a period of recession or a boom period; it is always important to save money. At the very basic level, it provides a contingency fund that can help protect us if any unexpected expenses crop up. However, the real benefit of saving money is that it frees up money that can go into savings accounts, a pension, or investment instruments.
As outlined in this article, the key to saving more money is to monitor your spending, set yourself targets, drive down your expenses and eliminate any existing debt. Finally, remember that a key element of making this a successful long-term behaviour is to develop a saving attitude and to keep track of how you are performing against the targets that you have set yourself.