In tough economic times, it’s often difficult to put away savings for when you’ll need it. Many of us find ourselves living paycheck to paycheck, struggling to pay rising living expenses. Because emergencies like health problems and job loss can happen to anyone, many advise that a minimum savings goal should be roughly three-to-six months of living expenses. In contrast, a recent survey found that only 71 percent of Americans had any type of emergency savings, the lowest surveyed in five years. Saving money may seem impossible now, but luckily there are many simple ways to live frugally.
Track your expenses. Save receipts for all purchases you make in a month. Gather your monthly bills. Sort them into two main categories: fixed and flexible. Break each of these down further into two subsections: needs and wants.
Fixed expenses are roughly the same from month to month. Fixed needs are things like rent, utilities, car payments, student loans, insurance, basic phone service, and ongoing healthcare expenses. Fixed wants are typically subscription entertainment services, such as cable television bills, premium phone service, and high speed Internet (unless necessary for your business).
Flexible expenses vary from month to month. While they often have a minimum required cost, most people spend more than that. Flexible needs are things like food and clothing. Flexible wants are typically entertainment, alcohol, hobbies, electronics, and other items that we may treat ourselves or our loved ones to.
Some banks and credit card companies offer free automated software that tracks your spending and can create some of these categories for you.
Create your budget. Start with your typical net monthly income, which is your paycheck after taxes. First subtract your fixed expenses. Then, determine what 10 percent of your net income is. This should be your minimum goal to save each month, although 20 percent is even better. Subtract that number from what’s left of your paycheck. The final amount is what you will work on to figure out a budget.
Do you have enough money after bills and savings to cover your typical spending habits? If not, reduce your expenses. Look first at flexible wants, then to fixed wants and flexible needs for areas you can improve.
If you income is irregular, such as most retail workers who don’t usually have fixed schedules, start with an average of the last six to twelve months.
Avoid making impulsive purchase decisions. Always “sleep on” larger purchases that don’t need an immediate decision. If you aren’t mindful of your spending, a trip to the store or a few clicks on the web can blow your entire budget.
What constitutes a larger purchase will vary depending on your income level. The two biggest purchases for many people would be a car or a house. Both of these should take a lot of research and time before committing to. However, while most workers would consider things like furniture, appliances, and electronics to be big purchases, very high earners may not. Conversely, while some may consider a superfluous pair of shoes or a new book to be a major purchase, others may view them as trivial.
Reduce your energy consumption. Electricity is often a large monthly expense. Do both your wallet and the environment a favor and cut back on your home’s energy use.
Seal cracks in your home to better insulate it and reduce the need for heating and air conditioning. Set your thermostat to a higher temperature in the summer and a lower one in the winter.
Unplug appliances when not in use and remember to turn off the lights. Change your computer’s settings so that it enters a very low-consumption “hibernate” mode when you’re not using it.
When buying new appliances, go with ones that have energy-saving features.
Consider reducing service levels. Shop around for a different service provider for your insurance, phone, and Internet. There may be new, better offers from carriers that have been introduced since you first started your plan. Evaluate whether your current service or coverage level is still right for you. Also, try to negotiate with your current provider for a lower rate. If you mention your intention to switch to a competitor, they may be more likely to give you a better offer.
Buy a reliable car with good gas mileage. If you are looking to buy a new vehicle, make sure your purchase has high value. Buy a model known to last a long time with low maintenance costs. You will also immediately begin to save money with a car that has better gas mileage, especially if you commute via car to work.
Refinance your mortgage. If your credit rating has improved since buying a home, it may make sense to refinance your mortgage. Because many homeowners find their credit getting better over time, they may qualify for a lower interest rate than they did a few years earlier. Refinancing can result in lower monthly payments and/or less money going towards interest. Consult your mortgage company to figure out if refinancing is right for you.