I’m sure you’ve noticed there’s a common formula behind most “easy ways to save money” articles. It goes something like this:
“Skip the morning latte/brown bag your lunch/cook dinner at home, and you’ll save ‘$X’ in a year.”
There’s a good reason this formula exists (even if it’s a somewhat tired concept): it works.
Those little savings really do add up, and that’s the main point of the story I’m going to tell you about my $50 investment. But I think it’s equally, if not more important, to note why the formula oversimplifies the concept of saving.
1. Saving strategies have to be sustainable.
Maybe you’ve conditioned yourself to equate your morning latte with getting in your work mindset. Maybe your lunch out is your hour escape from a high-pressure job. Or maybe your weekly dinner date with your significant other is what you credit for your great relationship.
The point is, everyone has different priorities, and some of those “little” things may involve cutting far more than a small monetary expenditure from your day. Even if you manage to do so, is it worth it? Is it sustainable? Instead of trying to cut out a number of little things, think through one or two items that make the most sense.
2. To understand saving, you must understand spending.
Rather than racking your brain for little things to give up, take a step back and divide your expenditures into three categories: basic, discretionary and unnecessary.
- Basic: This type of spending goes towards products and services that are pretty much non-negotiable in your life. Food, clothing, medicine; anything that keeps you alive and allows you to function properly. This, of course, can be very subjective. For example, 3 meals a day are essential, a 5-course meal at a fancy restaurant is not. If you’re honest with yourself, you should have a pretty good grasp on what is basis and what is not.
- Discretionary: These items aren’t crucial for survival, but they still play an important role in the quality of your life. Some examples include vacations, fine dining, entertainment, and jewelry.
- Unnecessary: One of the biggest missteps in budgeting is confusing basic and discretionary expense with unnecessary ones. I’ve always described unnecessary expenses as ones that provide no value or utility to your life. While it may seem obvious to avoid spending money on unnecessary items, we do it more often than we may think. In fact, I’d bet if you took inventory of things you own and services you receive, you’ll find at least a few of them do absolutely nothing for you. Low hanging fruit would be any ongoing service that isn’t fully utilized and can easily be removed or downgraded (cable, internet, memberships, subscriptions, etc.).
3. Saving is a deeply personal exercise.
A few years back, I decided that I had enough of going through the process of having my hair professionally cut each month. Not because I couldn’t afford it. I could. In fact, I consider monthly haircuts to be a very basic and justifiable expense. It’s certainly not an unnecessary expense, nor is it even discretionary. My hair needs to be cut from time to time.
Four years ago, I logged into my Amazon account, and invested $50 in an electric clipper and some basic shears. From then on, I taught myself how to cut my own hair. After a little trial and error, I got the hang of it, and I’ve been doing it ever since. Thus far, this $50 purchase has saved me over $2,000 and counting. This equates to a return on investment of 4,000%, not including the returns received by reinvesting these savings.
Again, this course of action wasn’t necessary. I gave up a basic expense that I could comfortably afford. I did this because, for me, it was a painless way to save (and thus earn) a meaningful sum of money. This approach is not viable or advisable to all, or even most people. But if you search deeply enough, you can find simple and sustainable ways to make similar progress in savings. For me, it was a haircut. What’s yours?