I love Mrs. Money Hacker’s blog and asked her recently if she would put together her some of her best tips for the Smart Money audience. She has so much good stuff that I‘ve split her tips into Part one and Part two. In the first part of the article, she details her best saving and budgeting tips.
On Savings / Budgeting
This article started out as top tips on investing but I wanted to take a step back to basics and include some of my best tips on savings and budgeting which could potentially find you even more money to invest.
Know where your money is going:
If you don’t know exactly how much you’re spending and on what you won’t be able to identify how much you’ll need to live on once you are financially free, nor will you be able to identify areas to best cut back in order to find more money to invest.
There are lots of tools and tricks to help with tracking expenses but it doesn’t have to be laborious. Some people like to track daily but I like to do a retrospective once every 6 months or so.
This can be as simple as extracting a CSV from all your bank accounts and credit cards (though some of these only go back 4 months online), compiling them all into one worksheet in excel and categorizing each expense into a set list of main categories and sub-categories (again you could find some samples online to get you started).
Once you’ve done this you can use a pivot table to sum up all the categories to really see where your money went.
2. Find a budget that is sustainable, that does not deprive you of happiness and align the money you do spend on things that bring you the most joy:
Once you can see where your money went, you can start to see some trends emerge. One really helpful trick I use to evaluate an expense is to convert it to how many hours I had to work for it.
When you convert cost into time it really brings perspective.
If you always find yourself short on time, try to see if there are any expenses you could easily cut, that you wouldn’t miss but could buy you more time. For example: a magazine subscription takes 8 hours of your time to pay for/month, you could weigh up the joy that magazine brings you vs say an extra day off or two half days twice a month unpaid for the same net effect on your take home.
If you can find a budget where you reduce expenses but the expenses you do have bring you the most fulfilment then you will not feel like you are depriving yourself and it will be a sustainable budget to maintain.
Tips on where to find extra money to invest
The biggest expenses in most households are food, accommodation and transport – making up 30% of household expenditure according to the latest CSO household survey in 2015.
3. Cutting down on transport costs
One of the best ways I have found to cut down on these is to be flexible with where you live and where you work. When looking for a new job or a new house I always consider the bigger picture and factor in the true costs.
If you have two people commuting in the household, could you move somewhere closer to one of your work places or get a new job closer to where you live, where you only need one or no cars?
When looking for a house I always considered the total cost, not just the rent/ mortgage and housing costs but the added cost and time to commute, the need to go through tolls etc. We have always tried to pick a house/apartment where we only needed one car between us. In Ireland, we estimated that this saved us a minimum of 200€/month in basic operation costs like maintenance, registration, motor tax, NCT and petrol not including tolls or car payments (as we always bought older cars in cash).
On that note, even if you can go down to one car, consider downgrading your remaining car. If you have car payments, consider how much extra cash you’d have to invest towards your financial freedom by not having a car payment for a few years. For example we drive an ’05 Yaris for which we paid 4,500€ cash back in 2015 and have had only basic maintenance costs since (knocks on wood). This averages about 75€/month so far and will continue to go down the longer we can manage to keep it on the road.
4. Cutting down on food costs
Food wise, look at what you are spending on groceries, alcohol, takeaways and restaurants and see where you can make some changes like:
Consider switching shops to the budget stores
When comparing multiple versions of the same thing in a shop check the price per litre or price per kg (often listed under each item) as a quick way to do a true cost comparison and get the best deal
Consider cooking at home more often, start by finding 1 extra quick healthy recipe per week.
Don't go shopping hungry!
Meal plan and only buy the ingredients you need for those meals, this significantly cuts down on food waste and ultimately cost.
Mrs. Money Hacker is a Canadian living in Ireland who struggled to find Irish specific content on investing and working towards financial independence following the popular passive investing approach through exchange-traded funds (ETFs). Her blog was started to share her research in plain English as well as her journey to financial independence and ultimately help others look at money differently and live a simple, more purposeful life.
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