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Saving money is a long-term project and it can be a hard habit to form. It helps if you can see the bigger picture and adopt saving as a lifestyle choice.
But it also helps if you can find a less painful way to cut down on spending. Many people, trying to save, make the mistake of plucking a number out of thin air then trying to put that much aside each month. If you’re living on a budget, that approach won’t work for long because you won’t know where the money is coming from or whether you can really afford it.
Here’s how to make a success of saving money.
Create a Simple Money Tracker
If you like the computer, fire up excel or something similar. If you like a more low-tech approach, a notebook will do just fine. In some ways a notebook is better because you can carry it round with you.
On a fresh page, draw three vertical lines so you have four columns on the page. Head these columns with Date, Item, Amount, Balance.
Fill in the columns like this:
- Date – when the transaction happened, whether it’s a purchase or income.
- Item – What you bought or where the money came from: Salary, for instance.
- Amount – What you spent or earned.
- Balance – how much is in your bank account today. To start with, go into your mobile banking app or get out your latest statement, and take the balance from there. You need something in this column to start you off.
In future, every time money changes hands, jot down what happened in your notebook or on the computer. Include everything, no matter how small a purchase, because it’s all the little things that build up when you’re not looking.
Don’t forget to include direct debits. You can add those right at the start, putting the date they go out of your account as the date in your tracker column.
You might find you only need one page each month. If you have more transactions (or smaller pages) it’s fine to start a new one every time you reach the bottom of the old one. Just remember to carry your balance forward so you have something to work with.
With each new entry, add or subtract the amount from your balance. You’ll always know exactly where you stand with the money you have available.
Although this is a simple system, it’s the basic concept behind all accounting and can be an absorbing activity. There are various ways to dig deeper into accounting, including taking a higher-level work-based apprenticeship or studying in college full or part time. It can lead to a rewarding career or prepare you for better accounting in your own business.
Give Receipts Some Respect
Make sure you get a receipt every time you buy something. Often, you’ll find shopkeepers assume you don’t want your receipt for small purchases, so ask for one.
Having a receipt frees you from having to enter the purchase into your tracker immediately as you can carry the receipt home. It also means you’re not in danger of forgetting something.
As soon as you can, transfer the details into your notebook or computer programme, and once you’ve done that you can throw the receipt away. Unless, of course, you need to hang onto it to prove a purchase later.
Tailor Your Spending
If cutting back or cutting out pleasures doesn’t appeal to you, you’re not alone. Trying to do without all the nice-but-not-strictly-necessary things in life is what makes a lot of savings plans fail.
Once you’ve been keeping close track of money making and spending for a couple of months, you can start to make the magic happen.
By digging into your number entries, you can quickly find out exactly how much you spend on any kind of item. Fuel for the car, take-away meals, hobby spends, groceries, utility bills, insurances… you’ll have everything itemised and categorised ready for analysis:
- Find Your Spending Patterns: Scanning through your ‘item’ column will show you exactly what you’re buying. Look for the items that crop up regularly. Add up all the figures in the month to get a total spend for that category.
- Find Out Where You Can Save: If you find you’re spending a scary amount on groceries, could you swap to a cheaper supermarket, or switch out a few brands? If take-aways are costing a fortune, would you really miss one or two if you cut down?
- Build Your Savings Plan: When you see ways you could cut spending, you can figure out how much you can save and how long saving for something would take.
This simple plan is just the beginning. There are lots of ways to use financial records like this to analyse how your household or business budget is performing. If you’re curious and want to learn more you can even learn accounting online, so you don’t have to change your existing commitments or lifestyle.