3 Key Things I Do To Save 40% of My Income
We all know of people that are constantly complaining about not being able to save any money. Are you one of those?
People are always faster finding an excuse rather than taking action!
The general rule of thumb is that most of the people mentioned above do not have any sort of plan, process or whatsoever when we discuss savings. As with most things in life, we have to start with a plan. Below are the top 3 actions I started doing every single month to be able to save at least 40% of my income.
Action #1 — Tracking Expenses
One of the first steps of taking control of our financial life is to know exactly how much we spend and on what. That means tracking all our expenses, from our rent/mortgage to the daily morning coffee. I normally categorize those expenses and give them priorities.
Paying the rent or our mortgage is usually one of the top priorities and in most of the cases is not flexible, we have to pay it and that’s it.
If we are spending every penny we earn, we have to understand where we can cut back. Tracking our expenses will allow us to do exactly that. Starting from the lowest priority, what are the things that we can reduce or even eliminate?
If we are spending too much on fuel, do we have the chance to take public transportation once in a while? Will that cut 20% of our monthly spending? This is just an example of a compromise.
“ In order to get something more, you need to let go of something else. ”
Action #2 — Set a Budget
Setting a budget will help us to have a ceiling or a hard limit. I think of it as the finish line of a race. The goal is to get there and stop!
If we already started with Action #1, our budget should be enough to cover our monthly expenses plus any other unexpected expenses such as annual insurance or car maintenance. How much extra should I add on top of my expenses?
There is no right or wrong amount here. I started with a generic value of an extra 20% more than my expenses and evaluated how it worked. It could have been 10% or even 5%. Month after month, we will be able to compute an average and check on what we have spent the extra.
“ First, we start the process then we improve it. “
Action #3 — Set a Goal
Setting a goal is key to visualize where you want to be. When you take the car for a trip, you have a destination in mind. This will allow you to decide on the best route, plan any stops, etc.
The same goes for a savings goal. This goal should be included in your budget. From my experience, I had better success and motivation by starting with a realistic goal. If I had set myself a goal of saving 80% of my income, I know from the start that it would be impossible to reach with my current income.
Then is much easier to take baby steps. My first realistic goal was about 10% of my income. This was basically what was generally left in my bank account when I got my first job without any budgeting at all. Then I know it would be easy to reach.
From there, you keep on increasing your goal and improving that budget. Today on average I am able to save 40% of my income. Some months more, some months less. I am still able to travel and enjoy life, by including the non-mandatory aspects of my life into my budget. The few months on which I do not go out so often or cannot travel, I am able to save even more.
What is your monthly savings goal? 1%, 10%, 60%? I am curious. Let me know in the comments below.
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Disclaimer: I am not a financial advisor. Always do your own research when investing.
