The first of the year brings many New Year’s resolutions, and they often involve money. Being a better saver is a common goal. This month to give your savings plan a boost, I have 2 simple ideas for you:
- The 5% challenge
- Change your frequency
The 5% challenge
Start by going back through your spending for the last 6 months. Categorize your spending and separate discretionary* and non-discretionary spending. Looking at your list of discretionary expenses, start with the largest amount and ask, can I spend 5% less? For example, if you spend an average of $400 per month on groceries, could you shop a little smarter (using coupons, sales, switching brands) and spend only $380 per month? Over the course of a year, $20 a month adds up to $240 a year. The 5% Challenge is a good way to begin saving because it doesn’t feel like a huge sacrifice. It is just a little tweak in your spending habits so it is easy to be successful.
*“Discretionary spending” is defined as regular spending that is not a required payment. Examples include groceries, personal care and clothing. Examples of non-discretionary spending would be your mortgage or rent, insurance, utilities, etc.
Change your frequency
Another simple way to reduce spending so you can save more money is to spend on a regular item with less frequency. Go back to your categorized spending list. What is your most frequent expense? It doesn’t have to be a large expense, just something you do regularly and repeatedly. Examples include eating out, beauty care, or coffee. Are you willing to reduce the frequency in order to become a successful saver? For example, say you get your hair cut every 4 weeks, or 13 times a year. Could you go every 5 weeks instead? If you pay $50 for a cut, you save $150 a year. Could you go to every 6 weeks? Now you are at 8 (or 9) cuts a year, saving $250 a year.
If you get coffee every day at $3 a pop, are you willing to make coffee at home 1 day a week in order to save $2.50 a week? That adds up to $130 per year!
If you spend $30 a pop getting your nails done every other week, are you willing to do your nails yourself every other time? Instead of a manicure 13 times a year, you get them done 6 (or 7) times a year. This saves $210 a year.
Repeat the exercise, rotating between your largest discretionary expense and your most frequent spending items until you get to your $1000 target. Write down your commitment. Put it on your calendar. Tell your friends. Ask you friends to join you in the challenge. Habits are hard to break and it is best to give yourself lots of support.
Every time you engage in your savings habit, put the money into your savings account right away. Otherwise you might feel inclined to spend it on something else! You will be rewarded as you see your account grow throughout the year. Celebrate! Without blowing your budget!