One Foolish writer regularly saves 25% of her net income. Find out how she does it...
It was the big fat zero that did it for me.
I had just completed my second month in my first job after university, and my salary had just landed in my bank account.
And I felt I had been working for nothing. I had spent every single penny I had earned that month - and more.
This depressed me no end. All I could think was: What was the point? Why had I been working so hard, if I had nothing to show for it at the end of the month?
And if I couldn't live within my means, I knew the situation would only get worse and worse each month.
So I set myself a challenge: to bring in more than I spent that month, no matter what it took....
The Challenge
Transferring £7 into my newly-set-up savings account 30 days later, I remember feeling I had won a small but important victory. Roll on the rest of my life, I thought, I can do it! I can live within my means!
Unfortunately, I didn't manage it every month. But I got better and better. You could say, as time went on, I developed a sort of knack for it. Which meant that, as my salary went up, so did my savings.
In fact, for the past six months, I've been managing to save 25% of my net income every month -- using the tricks I learned back when I was 22 and living on a very low salary in a very expensive city.
So what's my secret?
The Secret To Successful Saving
The secret is that there is no secret.
To put it another way, I can't promise you that what worked for me will work for you. What I can do, however, is share what I do, and what I've figured out over the years works for me. Here goes:
1. Set Yourself A Savings Goal
I find this is really helpful, because it steers me away from the temptation to spend, particularly on impulse purchases.
At the moment, I am saving up for an extension on my flat. I know what that means to me. It means a lot. So, when I walk away from a purchase - whether it's a new teapot or a new TV - I do it for myself.
You could say I'm mean with my money. Not mean to friends and family (I hope), but mean to myself. I give myself a hard time over small purchases and I ration out treats. For example, if I buy a new CD, I try not to buy another one for months. (Needles to say, my music collection is pretty poor.)
Don't get me wrong. It's not always easy to deny myself what I want, especially since The Fool pays me a decent salary and I don't have any kids -- so I know I could spend more if I wanted to. But in other ways, it's not difficult at all. Because I know, ultimately, I'm the one will benefit in the end.
2. Count The Pennies
The best way to save, in my opinion, is to count the pennies. In other words, check your bank statements and open your bills.
I can't stress how important this is - and how much it helps me to save. I'd say I monitor my incomings and outgoings using online banking at least three times a week, and I always read through my bills immediately to check for mistakes and analyse my spending.
It might sound boring but it means I feel in control of my money, and that in turn allows me to budget effectively.
What's more, because I am constantly looking at what I am spending, I know immediately when I should be concerned and try to cut back, to get my savings back on track.
For example, if I spend too much to meet my savings goal in week 1 of the month, I am aware of it quite quickly - so I can try to under-spend over the following weeks.
Those weeks aren't very much fun - which, in a way, is a good thing, because it puts me off over-spending.
3. Stay Alert
Call me cynical but if a company is offering me a bargain, my first question now is - why? Is it truly a bargain? What do they get out of it?
I always suspect a company is secretly trying to rip me off. So I take my time to my mind up and analyse their motives. If the deal still looks too good to be true, I will investigate the small print before I buy. And I always, always shop around and compare the market. I have a checklist of questions:
- Gas and electricity - am I on the cheapest tariff?
- Home insurance - have I got the best value policy?
- Broadband/phone-line package - any better deals out there?
- Mortgage deals - will I qualify for a cheap rate when I remortgage? What can I do about it now?
I read The Fool and if I see a deal that under-cuts my current one, I go for it. Then, that day. I don't put it off.
I fight back, too. Unfair bank charges, credit card fees, refunds, you name it. I've got them all back. (You can, too.)
You won't believe how staying alert like this can add up. In fact, I'd say cutting down on your outgoings and slashing those monthly bills is by far the easiest way to increase the amount you can save. Just make sure you save the money you save -- instead of spending it.
Of course, there is no doubt that the amount you can save will depend on your circumstances. You may not be in a position to save 25% of your income. But I think the three basic principles I outlined above could help most Fools.
But maybe you have some tips of your own on how to be a successful saver. If so, please share them with the rest of us using the comment box below....
> If you're already saving as much as you can, and simply want to know which is the best savings account to put your money in, read Sensational Savings Accounts For Summer Savers.
> Five Steps To Brilliant Budgeting