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Living within your means and padding your savings account with a healthy stack of cash can make a huge difference in the quality of life most of us are used to.
But, finding the inner Zen to stop spending on the stuff you think you need is easier said than done. No one said squirreling away cash would be easy. Cutting back can be tough, but with a little bit of a mindset shift, you can make a huge change in your financial health.
According to Bankrate, the average American household who can claim a savings has about $8,863 in reserve. But, most Americans (Almost 80% according to Forbes), don’t have any savings at all. This year, you can join the 20% who have an emergency fund.
Our guide will teach you how to save money and live better in 2020. We’ve got the best tips, tricks, tools, and strategies for better money management and healthier spending habits.
Step 1: Start With a Budget
If you’re serious about making a change and whipping your finances into shape, you need a budget.
In its simplest form, your household budget should allow you to live your life, buy what you need, and have something left at the end of the month.
In the same way that weight-loss is a simple equation in theory yet works out to be a life-altering process, spending less than you earn means making a host of changes.
Plan an afternoon to confront your finances and take the first step to manage your financial health with a budget. A budget is the first crucial you must complete to save money and live better.
To create your household budget, list your expenses and your income. Be honest with yourself about what you’re spending each month.
Be prepared to sit down with your bank statement and dig all the receipts out of your bag. Create an honest list of how much your spending on the essentials and the luxuries.
Go through the list and figure out what can be cut. Your goal is to close out your months with money left over.
Set clear limits for each category of your budget and make a commitment to yourself to stick to those limits.
How Much Should You Be Saving Each Month?
According to Experian, you should be aiming to devote 20% of your after-tax monthly income to savings.
A popular approach to budgeting is the 50-30-20 rule. Based on this school of thought, 50% of your income should go to necessities, 30% to wants, and the final 20% should get saved.
Take Advantage of Tools
Keeping an iron grip on your finances can be tough if you’re relying on your own discipline. People often forget to write down purchases and keep track of payments. Fortunately, the world of FinTech offers up a sea of options for app-based budgeting.
Choose from the top budgeting apps and set yourself up with a monthly budget you can actually visualize every time you open your account.
Alerts and notifications can help you establish a connection to your money that will keep you accountable for your financial choices.
Step 2: Save Up an Emergency Fund
If you’re living paycheck-to-paycheck today, you might not realistically be able to devote 20% of your income to savings. You might have more or less to work with at this point, but your primary goal should be to set yourself up with an emergency fund.
An emergency fund is a separate stash of cash—apart from a savings or checking account—that you reserve only for use during unforeseen circumstances.
Make contributing to your emergency fund your top priority. Once you have a solid foundation set up, shift your focus to your general saving goals.
Dave Ramsey even suggests that if you have a little money left over at the end of the month, it should go to building an emergency fund, not paying off debt.
How Much Should Be in Your Emergency Fund?
Its recommended that you save up enough money to cover between 3 and 6 months of your living expenses and then leave the account alone.
This means that you’re not continuously contributing to this account, but the sum also doesn’t count toward your overall savings goals.
Where Should You Put Your Emergency Fund?
Set yourself up with a separate, interest-earning account at your bank or credit union. Make sure the account you choose can be accessed easily without fines or penalties. And, you should only plan on withdrawing money when you absolutely have to.
Your emergency account should cover things like unexpected car repairs, surprise health care costs not covered by your insurance, expenses incurred when things are damaged, or even legal fees for situations you couldn’t have anticipated.
When you take money from this account, plan on paying it back to your emergency fund.
Step 3: Cutting Back on Expenses
Working out the numbers of your budget is one thing, but actually sticking to it is another. Even before you work out how you’re going to resist the temptation to blow $9 on coffee every morning, you need to optimize the firmer budget items on your list.
Now that you’ve got your list of expenses laid out, use a critical eye to decide what you can cut out or reduce. Start with the easy stuff and cut out anything you’re paying for and not getting value from.
Commit to touching every single item that comes out of your account on a monthly basis.
1. Cancel Subscriptions
Got a music subscription that you could live without? Are you paying annually for a weight loss app you don’t need? Is there a gym membership floating around your monthly statement that’s sapping your funds? You probably don’t need Disney+.
Open up your app subscriptions and start opting out of monthly renewals.
You can do it automatically with Trim app.
2. Scale Back Your Cell Phone and Cable Plans
If you’ve got a contract with a standard cell phone provider, you can probably cut back on your plan and save money without crippling your lifestyle. You might not even need to break your contract.
If you’re nearing the end of your cell phone contract, consider switching to a pay-as-you-go plan and save up to $50 a month on your data plan.
Cut back on your cable options and consider cutting out cable or satellite altogether in favor of popular streaming services like Netflix and Hulu to save money and live better.
3. Renegotiate Your Payments
How much are you paying for your rent? What about your student loan payments? Does your health insurance take a large chunk of your monthly budget? Most of these bills can be reduced by calling up your provider and telling them that you need to pay less.
Putting in the time to discuss your payment options with your providers could save you a pile of cash every month.
4. Raise Your Deductibles
Update your car and health insurance plans by setting your deductibles a little bit higher.
Because you’ll be maintaining an emergency fund, you’ll be prepared for the additional out of pocket expense that comes with a problem, but you’ll save money on your monthly payments.
The difference in payments from one deductible limit to the next often far outweighs the amount of money you’d have to shell out if you need to file a claim.
5. Switch Banks
Chances are, your bank is probably charging more than you can afford in fees and surcharges. Spend some time shopping for accounts that offer no ATM fees, lower overdraft fees, and no monthly maintenance charges.
Step 4: Shop Smarter to Save Money and Live Better
Once you’ve trimmed unnecessary costs from your monthly budget, it’s time to cut come up with a strategy for cutting back on other expenses.
Groceries, eating out, shopping for gifts, paying for upgrades in your favorite apps and games, updating your wardrobe, transportation, and entertainment represent giant black holes for many Americans.
The cost of food adds up quickly. And, many of these other expenses occur in small denominations of a few dollars here and there, but they add up in a big way over the course of a month.
Setting a budget for each of these categories will help keep your spending under control. But, shifting the way you shop can also make a considerable impact.
1. Pay in Cash
When you forgo your card for day-to-day purchases, you get a clear visual of how much money you have left after each purchase. Limiting yourself to cash forces you to learn to work within the bounds of what you have.
2. Create a Weekly Meal Plan
Food represents a large cost center for most of us, but we almost always buy more than we need. MarketWatch claims that 40% of all groceries are thrown out.
Creating a meal plan for yourself and your family each week lets you purchase fewer groceries and use more of what you do buy.
3. Pack Your Lunch
Eating out is expensive. You Probably already know that. But the numbers, when you lay out the realities, will probably blow your mind.
The average lunch costs about $10. If you pack your own lunch and spend about $4 per meal, you’ll save about $1,500 a year. That could be your emergency fund in one go.
Healthline claims that a typical $12 salad at popular lunch-time restaurants can be replicated at home for just $3. At those prices, that’s a savings of almost $2,300!
Here are 75 crockpot recipes to make your meals under $3.
4. Adjust Your Thermostat
Putting on a sweater in the winter and finding cost-free ways to beat the heat in the summer can save you big on your utility bills.
Closing the drapes during the day and opening your windows at night will keep your home comfortable without spending a dime.
5. Shop With Cashback Programs
There are several programs out there that offer you cashback bonuses on your day-to-day purchases. Getting in the habit of shopping through these platforms can have a big payoff.
Rakuten is a service that takes the commissions it receives from advertisers and shares it with you in cash.
There are over 150 popular retailers on the platform. And, you can get 10% of your purchase back in cash by just visiting the site through the links provided by Rakuten.
Use programs like this to pay for gift cards, daily necessities, and more to make your money stretch further.
Taking advantage of these programs makes a big difference in your monthly entertainment budget. It can truly help you save money and live better.
Step 5: Look for Ways to Supplement Your Income
We’ve covered your budget, your plan, and strategies for cutting back on your expenses, but the final area of smart money management is your income.
Although your income might be fairly fixed to a salary or hourly wage, securing another source of income can transform your financial life.
According to CNBC, 1 in 3 working Americans have a side hustle. And, they’re not all that hard to get started with.
An ideal side hustle lets you bring in a consistent source of income without dramatically affecting the quality of your life. Blogging, freelancing, and sales are all easy to start and can supplement your income without taking you away from home.
Bankrate conducted in a survey in May of 2019, that found that the average monthly income from a side hustle was upwards of $1,120. That amount of money could quickly set you up with a comfortable savings and emergency fund.
The Secret That Lets You Save Money and Live Better
Smart money management takes work, but you can do it. However, even with a rock-solid budget, a super-smart app, and all the tips in the world, you’ll still struggle to make progress on your financial goals if you don’t change your mindset.
What’s the ultimate secret that lets people save money and live better, more bountiful lives? Learn to be happy with what you have.
If you can find satisfaction in what you’ve got, the temptation to keep buying things will vanish. You can live very well with a lot less stuff than you think.
Appreciate what you do have and value things that have nothing to do with money, and you’ll stop struggling financially.