6 Hacks to Help You Save Thousands of Dollars Each Year
One of the things that separates rich people from poor people is the ability to save money without spending it frivolously. Most successful rich people, particularly self-made wealthy individuals, earn far more than they spend each year. They live below their means. They save at every opportunity. Of course, that’s challenging to do if you’re living paycheck to paycheck, but there are actually quite a few ways that you can cut your spending dramatically and start socking money away for the future. In this post, I want to explore some of the most important (and surprising) hacks that will help you save thousands of dollars each year.
Keep Net Worth in Mind
When you think of wealth, chances are good that you picture spending ability. It’s all about how much cash you have on hand at one time, right? It’s your annual income, and your ability to buy whatever the hell you might want. That’s the picture of wealth that we have come to see, thanks to Hollywood and professional sports, but it’s actually far from the truth.
In fact, I’d go so far as to say that your income has little to do with whether or not you’re wealthy. After all, if you earn millions per year for a decade, but then you’re filing bankruptcy at the end of that 10-year period, how wealthy are you, really? In truth, net worth trumps income every day and in every way. Your total worth, including investments, homes, and other assets, is wealth, not what you bring in from week to week throughout the year.
Change your mindset so that you focus on building your net worth and you’ll quickly realize that annual income is just one part of the equation.
A Little Honey in Your Life
To be clear, I’m talking about Honey, the money-saving browser add-on, not the delicious result of a beehive’s labors. Honey is an interesting way to save money without really changing your spending habits very much. All you need to do is install it on your browser (it’s available for most major browsers like Chrome, Safari, and Firefox).
Once you’ve installed it, you just need to create an account, and then you can start searching for coupons to the online stores that you frequent most often. There are several advantages that you’ll enjoy here, including:
It’s faster than trying to use a manual coupon site.
It offers a much wider range of options than sites like Groupon.
It works with the items that you actually want to purchase.
It’s automatic, so you don’t need to do anything other than shop and save.
How’s it work? It’s actually pretty simple. Once you have it installed and your account created, just go to your preferred ecommerce site. We’ll use Amazon as an example. Once there, just add what you want to buy to your cart. Then go to the checkout page, and click on the Honey icon in your browser. Click on “apply coupons” and Honey will automatically check out your items, then search the Internet for coupons on those. Any coupon the extension finds will be automatically applied, saving you money instantly.
Follow the 50/30/20 Rule
You’ve no doubt heard of the 80/20 rule. This one is similar, but not really the same. It applies to building your net worth and is a way to help ensure that you’re not just spending money hand over fist.
First, you need to account for your regular expenses – food, utilities, mortgage payment, etc. That’s the 50% portion. You set aside half of your paycheck to cover your regular bills.
Next, we come to the 30% - this accounts for the things that you want to do. These are not necessities, but luxuries. Think going to the movies, or taking your spouse out for dinner. Vacation spending would fall into this category, too. You will put 30% of your income toward your wants.
Finally, we come to the final portion. The last 20% of your paycheck should not be spent, either on wants or needs. Instead, it needs to be saved. It can also be put toward paying down your debt. Whatever the case, at least 20% of what you earn each paycheck should go toward building your net worth either by increasing it, or by decreasing your debt load.
Set Goals and Track Progress
Another thing that separates the rich from the poor, or the successful from the unsuccessful, is the ability to set goals and track their progress. Simply put, if you don’t know where you’re going, you’ll never go anywhere. You might know where you want to go, but if you don’t set goals and measure how far you’ve moved toward each of them, you’ll never reach that ultimate destination.
Of course, not any old goal will work. Let’s take something pretty common and easily understandable. For the vast majority of Americans, New Year’s is a time to set goals for the upcoming 365 days. Most of those goals are going to revolve around health and fitness, and one of the most common resolutions is to lose weight.
That’s noble. It’s admirable, even. However, it’s not something you can really attain. Why? Because it’s not SMART. That is, it doesn’t conform with the SMART method of goal setting. How much weight do you want to lose? How will you know when you’ve lost that weight? What are you going to do to lose the weight?
SMART goal setting works as follows:
S – Specific – Your goal needs to be specific. Think, “I’m going to lose 2 pounds per week for 2 months.”
M – Measurable – Your progress towards that goal needs to be measurable. Think logging 2 pounds lost per week for 2 months in a journal.
A – Achievable – Your goal needs to be something that you can realistically achieve. For instance, you can lose 2 pounds per week, but you cannot lose 50 pounds in a week, at least not without surgery.
R – Relevant – Your goal needs to be relevant. That is, it needs to matter to you in more than an abstract way.
T – Timely – Your goal needs to be bound by time. You need a deadline to tell you when to stop.
Think Things Over
One way that we often sabotage ourselves when it comes to building wealth is that we spend money without really thinking about it. We realize that we have enough money to upgrade our car, so it’s off to the car dealership without a second thought. We realize that we can upgrade our computer, so we head for Best Buy without thinking things over. We realize that we can afford a nice, big TV, so we buy the biggest thing our bank account can handle without thinking about it.
Yes, money exists so that we can buy things. However, we spend it on things that we really don’t need, or on more expensive things than we really need. Most of this is done on impulse. We don’t really give ourselves an opportunity to think things over. We go out and do it.
Instead, give yourself time to think about your purchase. Ideally, you’ll take 72 hours to decide if this is something that you really need to do. The next time you add something to your Amazon cart, leave it there for 72 hours and see if you still want it. The next time you’re tempted to make a bigger ticket purchase, think it over for 72 hours and see where you stand on things when that time is over.
Often, a little bit of time is all that’s needed for us to realize that we either don’t need whatever it is that we’re interested in buying, or that we will be just fine with a cheaper version of that item. Give yourself a little time and it can help you save a huge amount of money over the course of a year.
Take Advantage of Automated Ways to Save
For too many of us, saving is a second thought. If it’s left up to us, we’ll spend the money even if we don’t need to do so. There’s a way around that – automated savings options. These offer the means to sock money away before it even reaches your hand or your bank account.
Perhaps the best example of this is your 401(k) account. Set it up so that your contribution comes out before you’re paid. That lets you save for the future, but it also ensures that you’re not the one responsible for putting the money away. Of course, there’s also the fact that this allows you to reduce your tax burden, build your wealth through tax advantaged means, and take advantage of any sort of contribution matching program your employer might offer.
Your 401(k) is just one example of automating your savings. There are other ways you can do this, including with apps like Acorns.
Ultimately, there are plenty of ways that you can save money over the course of the year. The most important step is to realize the need to do so and then to act.
If you want more tips and tricks to accumulating more money and success in your life, then I would also like to take the opportunity to invite you to claim your free copy of my brand new book "77 Life Hacks for Aspiring Entrepreneurs". I explain all of the life hacks that are proven for success so you can craft the life of your dreams.