Spending less is definitely going to be a challenge this year, especially with the increase cost of energy prices. Not only have they gone up a huge amount already, they are set to increase again in October.
2020 data from the Office of National Statistics revealed that nearly 40% of British households spend more than what they earn, and 17% lacked the financial means to sustain their spending habits for more than a year. If you lack the income to support your expenses, you might plunge yourself into a deep cycle of debt, limit your spending choices, and widen the gap between yourself and your financial goals.
The road to a financially healthy life may involve difficult compromises along the way. But as long the end goal is kept in mind, you’ll realise that these lifestyle changes are very much worth it. One of the essential lessons in your journey is not just how to spend less, but how to spend smart. You can get started with these changes:
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1. Do the Maths
It’s wise to start with a review of your usual spending patterns to see what can be adjusted. When you get a clear picture of your expenses, you can then plan a budget around the things you absolutely need. Harvard bankruptcy expert Elizabeth Warren came up with the 50/30/20 rule, which entails having only 50% of money spent on needs, 30% on wants, and 20% on savings. Bear in mind that the “wants” do not include luxuries or extravagant purchases. This section should simply be an extension of your needs, or basic necessities like fast internet and a mobile plan. As you can see, savings are treated as an expense, not just leftover money at the end of the month. By treating yourself first with savings in this way, you’re more likely to build up a substantial amount.
Take a look at our saving money for Christmas article here.
2. Plan your meals
Food is obviously a necessity, but people tend to overspend on it. You can significantly cut costs if you skip restaurant visits and takeaway meals and start practicing meal planning. This method not only helps you save but also reduces kitchen waste from leftovers or unused produce.
A good weekly meal plan is one that produces a variety of meals with a select number of ingredients. It involves creativity in the kitchen, something that can be learned with practice. Before doing the grocery rounds, be sure to have a prepared meal plan. This will encourage you to limit or eliminate impulse purchases.
3. Make investments
Smart spending may mean buying to save on something else, or simply investing. One tip is to consider how one purchase can pay for itself. Say you grab a cup of £3 coffee on your way to work. While it is a convenient choice, the total amount you spend on pre-made coffee in a year will exceed £600. Consider how much you can save if you purchase your own coffee machine (£80) and coffee bags (£16 per 1lb). This may seem like the more expensive alternative at first glance, but switching to them will allow you to recoup your investment in the long run.
You can also grow your wealth through income-earning investments. Some investment vehicles you can put your money into include stocks, bonds, mutual funds, and REITs. Today, one of the most talked-about investment vehicles is Bitcoin, a digital asset that allows users to make transactions without interference from authoritative institutions, such as banks and governments. Bitcoin and other cryptocurrencies have gained widespread popularity thanks to their promises creating a decentralised future. However, an FXCM guide to the basics of Bitcoin trading notes that buying cryptocurrencies can still be risky. Because cryptocurrencies are less established than stocks and bonds, prices tend to change more dramatically. To protect your money, only invest what you can afford to lose.
4. Prioritise quality
Spending smart doesn’t necessarily mean going for the cheaper option. In fact, it may be the opposite. Take clothes, for instance. If you prioritise an expensive but good quality garment, you’re guaranteed its good use for many more years. Compare this to a cheap pair of jeans, which may wear out after a year. Sure, buying cheap items may feel like an accomplishment at the start, but always think about what these things can do for you in the long run. A good trick is to think not about the cost per unit of an item, but about the cost per use. This can be applied to everything from clothing, to tech gadgets, and even to furniture.
Saving money is one thing, making money is another. Our guide on How to Make Money Online outlines the different ways you can increase your income-earning capacity. With smart money making and savings strategies, you can keep your finances secure and stay on top of your financial goals.
We hope you found this article helpful. Always remember to get advice from those you trust that may have an understanding on anything that requires you to part with a long sum of money.