With today’s economic climate, the dynamics of savings and investing have changed significantly, and what used to make sense in banking no longer applies. After we broke down for you how to become a millionaire step by step, we received an overwhelming amount of emails asking us how to save money to have capital to start a business and so it only made sense that we respond to our fans we a comprehensive look at how to save money in today’s changed economic climate.
With today’s interest rates being below 1% at your regular banks, it makes it very difficult for your money to make money and with no sign of the economy improving back to its pre-recession state in the next year or two, it opens opportunity for you to invest in less conventional ways as discussed in the Stay Broke Forever series. Before doing so, you need to learn the discipline of saving and the different strategies you can leverage to get there faster.
Saving is not a typical habit, and it is often much harder to do than to spend. It is inevitable to spend when we are in constant competition with our neighbors, friends, co-workers and just about anyone else we seek to impress. The upgrade effect we discussed earlier is very much factual and even often the core study that retailers worldwide spend millions researching on each and every year to stay ahead of us. They know what will trigger our attention, and are aware of ways to get it in the hands of those around us just to create a mass effect of temptation.
Being able to control this constant desire for competition on irrelevant topics like fashion, entertainment, or luxury goods allows us to step further ahead of the crowd and prove to ourselves that the logical approach to finance is our competitive advantage. Emotional decisions around finance are always the worst we can make, as emotions often involve impulse, and impulse often involves spending to satisfy that feeling which eventually gets us away from our ultimate goal and instead makes us spend.
Here is a 3-step process to help you increase your savings, and decrease your spending as featured in our best selling financial series Stay Broke Forever.
1. Understand where you spend: to learn to save, we must first understand where we spend and be willing to cut out unnecessary spending until we have full control.
Here are the tools you will need:
• 90 days of all your bank and credit card statements;
• A pen and notepad;
• A yellow, blue, and pink highlighter;
• Your ability to make hard decisions.
Once you have collected all of the above, come right back and let’s get started on putting an end to what I call, “unlimited spending”.
Simply take each of your banking statements and use your highlighters to highlight every transaction you have made in the past 90 days in the following matter:
YELLOW: Transactions that were mandatory. This would include your gas, car maintenance, or anything else that is absolutely without question necessary. Eating out does not fall under this list but groceries do.
BLUE: Transactions that were necessary based on wants, but you could have lived without. This includes outings to eat, coffee, or entrance fee for night club, show, or some other venue, etc.
PINK: Transactions that were 100% wants and had no relevance to your actual needs. This would include shopping for clothes, accessories, and more. Indulgences should also be included here.
You might still have a few transactions that you are unclear on, but ALL must be highlighted at the end, meaning you MUST choose where it falls into. Be honest with yourself as no one can help you once becoming broke, and therefore, this list is for you to see only.
Take a total of each color and get a real gauge on how much money you are wasting rather than saving. The YELLOW is what you had to spend, the BLUE is what you chose to spend due to weakness, and finally the PINK is simply all the money you threw away because of your inability to control yourself and your wants.
For the next 90 days, you will have to change your habits by doing the following:
1. Being able to save 25% of your incoming pay every 30 days.
2. No longer using credit to purchase ANY daily expenses.
3. Have reduced the previous debt you had accumulated.
Set a budget of the YELLOW amount plus fifty percent of the BLUE spending amount and entirely get rid of the PINK spending habits. At the end of the 90 days, repeat this process and lower it until you succeeded changing your habits.
2. Go back to basics with savings strategies: There are two good methods to start saving money especially if you are in debt or not very disciplined about savings and often play it very close.
Envelope method: The envelope method is the simplest that everyone can try, yet requires organization. The idea is to buy a series of envelopes and label them each with a different expense that is fixed for the month. For example, one envelope would say “Cell Phone Bill” and $100 in it for the amount that is due each month. Another envelope could say “Car Payment” and $400 in that envelope, as it is a fixed monthly debt. Each paycheck (if paid bi-weekly), you will deposit half of the amount written in that “Paycheck” envelope. This method keeps you from having to look around and seek cash to pay your bills but rather helps you budget the difference between fixed income and desired expenses. This enables you to use one of the envelopes as savings and deposit a few dollars each two weeks for emergencies.
Debt reduction; cash saver method: This method is more for those that are in debt with credit cards and are having a hard time coming out of it and growing as a result. What you are going to do is take your entire credit card statement and look at the past 90 days. You will then highlight all the expenses that were not needed but rather wanted. You will then add all the dollar amounts and basically understand the new amount you can contribute to reducing debt instead of accumulating it.
First, leave only one credit card with you in the car, not in your wallet, you will cut down all unnecessary spending and may even go as far as taking lunch to work. This will be followed by making larger payments to reducing debt and using your card ONLY when you have to, not when you want to. You will then take the amount of money you used to pay to your card and move that to a new savings account that you have no easy access to. As you pay off your card, you are lowering debt and saving more on the side which means you can take that envelope as it’s getting closer to your left-over balance and pay off the whole card at once. Continue this method after your payoff in order to drive more money in your savings until enough is accumulated, allowing you eight months of unemployment. Once you have reached this goal, leave that money aside and work on setting yourself up for success by using the rest of your money.
3. Don’t let your toys lose their value: You may have heard of our luxury lifestyle system and perhaps not really looked into it because it seemed too good to be true. Contrary to what many believe, our system is not magic but rather an in-depth look at the luxury lifestyle industry from cars to watches and breaks down how to stay ahead of depreciation, mark-ups, and the power of supply and demand. For those of you who have an addiction to cars and watches, here is a new way for you to save rather than to spend but yet still retain all the same toys.
The idea is less complex in its execution once you have mastered the market around it. The idea is to purchase luxury items that are sought after by the mass public on the secondary market, but have depreciated enough to make them worth purchasing and keeping for a bit of time without risks of massive depreciation.
We could think of this from purchasing a car to purchasing your next watch. Assume you were looking for a nice Rolex that sold new for $12,000 at the local jeweler, and would depreciate to $7,000 the minute you walk out with it being similar to purchasing a car. This would equal a $5,000 loss that month and would constantly add up if you decided to keep doing this. Now instead of using this method, you will find the same watch for $6,500 on the used market in mint condition, and will wear it for a year keeping it in the same condition by being careful with it. Once you are bored of it, you simply want to get a different one and will post it for sale for what you bought it for. Once sold, you will purchase another one without ever changing the same $6,500 being transferred to different items. You can even decide you do not want the three high-end watches, instead decide to use the $18,000 towards a down payment on an exotic car that is well depreciated. The transfer itself allows you to play with any amount of money, simply transferring it between items and eventually just liquidating it for cash at anytime if you need liquid access instantly.
Today’s banking rates pay less than 1%, so why not use this system to live up your money without spending it instead of letting it sit as cash in a bank account earning nothing. You should still hold savings in order to have liquidity, but can now take a percentage and transfer it amongst items, giving you all of life’s pleasures without being faced with the limitless spending issues with which you see others dealing with. We hope you enjoyed this breakdown on how to save money while still enjoying life. For those of you who want to really change the way you think of finance and get a more in-depth look at these system, make sure to check out our STAY BROKE FOREVER system.