How can I start saving money?
Where should you start when you desperately need to save money?
If you need to turn your finances around, you might easily be tempted by get-rich-quick scams or end up spending far too much time filling in surveys for a pittance. Yet whilst making extra money is important, it doesn’t cut down to the cause of your budget imbalance.
You need to go straight to the source!
The first thing that I recommend to anyone looking to straighten up their finances is this:
Write down everything you spend for one month.
Most of us whose bank accounts are in good shape have an idea of income and outgoings, but don’t necessarily know these down to the penny. So if you want to get out of the red, or want to get even better at managing what money you have left at the end of the month, start here: write it down.
Every transaction, down to the penny, whether cash, card, contactless, direct debit or standing order. Write it down any way you like – my husband preferred writing transactions on a calendar, whilst I always kept my records using apps on my phone. Yes, I did it at the start of my extreme penny-pinching several years ago, and I got hooked. Now it’s evolved into a streamlined system, but it started on a calendar.
The best thing is, you don’t need to spend a thing to get started, and you don’t need to set up any special bank accounts. There’s no reason to put it off. Just start.
Knowledge = Power
If you track your spending for one month, the first thing you’ll get out of it is knowledge. With that knowledge, you can see precisely where your money goes, and you’ll then be able to change where it goes. Furthermore, if you decide that you can’t change things or cut back, you’ll know exactly how much more you need to make before you can balance the books. But there’s still another reason why tracking your expenses is the way to start saving money – it’s in the psychology of spending.
No pain, no gain
The reason it works is simple. It’s painful. I don’t mean that it’s a pain having to do it,although it is a pain when you forget to do it straight away and then have to rack your brains over how much that sneaky chocolate from the petrol station was or hunt down the receipts you magically accumulated. You could say it’s just painful to face facts about your spending, but that’s not it either.
The pain of spending is what helps us to be frugal, but the modern world has (unfortunately for many of us) eased that pain.
The BBC’s three part documentary The Men Who Made Us Spend highlighted many aspects of contemporary consumerism which we walk past daily without a second glance. In one episode, it was shown that making purchases with cash created a more ‘pain-like’ sensation in the brain, whereas using credit cards bypassed this effect by forestalling the inevitable loss of currency. If you don’t see it, it doesn’t hurt you.
This is why many personal finance gurus will advise you to pay only with cash, because you’ll want to minimise the pain caused by spending with cash. But I don’t use cash much because I get too many perks from my plastic – cashback, for example. What this system does is make paying with plastic almost as real as paying with cash
So make yourself see it all. You will want to find ways to reduce the pain, so you’ll find yourself saving money by choice, without even having to think about it. It’s a mental training regime. You’ll feel empowered to plug the leaks in your pocket, so the pain will in a real sense become gain – money staying in your wallet.
Should you track your expenses?
If you find yourself dipping into your overdraft, avoiding bank statements or living for payday, then you definitely need to. If you have enough for now but feel you need to prepare for a change in the future, then yes, of course you should. It doesn’t mean that you will spend your life being uptight over every last penny, but it does mean that you are taking control of your finances. Maybe you’re desperate to plug the leaks in your wallet before you go under; maybe it’s just that you’re intrigued enough to do it for the laugh. Regardless, if you want to start saving money, just give it a try for a month. One month.
I dare you.