How to Set Up Your Emergency Fund
Your emergency fund can help you cover the cost of life’s unpleasant surprises like medical bills, car repairs, or even job loss. Read more…
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.
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.
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.
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?