This 2-step plan can help you spend less and save more
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Who doesn’t have the goal of seeing the number in their bank account tick upwards? But while “save more, spend less” sounds like an easy enough game plan, the majority of us aren’t following it.
According to a new Bankrate survey, one-third of households had a major unexpected expense last year costing at least $2,500. The problem? Only 39 percent of Americans say they have enough emergency savings to cover a $1,000 emergency.
Clearly there is a discrepancy between how much we are socking away and our real financial needs.
“Part of this is due to an increased cost of living and part is excessive spending on non-essentials,” says Graham Summers, MBA, the President and Chief Market Strategist of Phoenix Capital Research and best-selling author of The Everything Bubble: The Endgame For Central Bank Policy.
In other words, part of the problem is completely under our control.
“In 2016, Americans spent more on eating at restaurants/bars than they did on groceries,” says Summers. “The average American eats over four commercially prepared meals per week. This comes to over $3,000 per year at a minimum. And one in three Americans spend more on coffee per year than they do investing.”
Graham used to live this way himself in his 20s. Until suddenly, he looked at himself in his early 30s and asked “I’ve been working for 10 years, where’d all the money go?”
Finances can be overwhelming. And they are easy to sweep under the rug while we enjoy our overpriced latte. But making a little effort can have big return. That’s why Summers breaks down financial planning into two easy strategies:
- Cut back on your expenses.
- Increase your income.
Step 1: Cut your expenses
Expense Cutting Tip #1: Start counting non-essential expenses.
“Humans are not wired mentally to ‘count credit,’” says Summers. “If you wanted to get in shape, your trainer would tell you to start counting calories. If you want to get your finances in shape you need to start counting non-essential expenses.”
Obviously this is easier said than done since so many of our daily purchases are built seamlessly into our daily routine: your morning coffee, the sandwich from the office cafeteria, the pit-stop for a few things at the grocery store on the way home from work.
Summers suggest following these three tactics:
- Use physical cash to pay for non-essential purchases. This makes you more aware that you’re ‘spending money’ and makes spending money more difficult since you have to find an ATM.
- Put all non-essential purchases on one specific card and add them up every week. “You’ll be astonished how much you’re spending when you actually add it up,” says Summers. “This makes you ‘see’ how much you’re wasting.”
- Use an app to track your expenses.
“All of this might be uncomfortable at first, but so is introducing any healthy habit,” says Summers. “The goal here is to adjust your spending habits so that your lifestyle becomes one in which you’re improving your financial health. Making it more difficult to spend money by using physical cash or limiting non-essential expenses is something anyone can do.”
Expense Cutting Tip #2: When it comes to meals, coffee and drinks, Do It Yourself
“Restaurants, bars and coffee shops have to mark up the price of things to cover their overhead (rent, payroll, utilities, and the like),” says Summers. “As a result when you eat or drink at a restaurant, bar or coffee shop, you’re paying a lot more for something you could likely prepare yourself.”
We get it — the wine bar, Thai restaurant and your favorite bakery are calling your name. Try these two tactics to make it a little easier to cut back:
- Prepare your coffee at home and take a thermos. The couple bucks you shell out for a coffee might not seem like a lot, but it adds up: 1 in 3 Americans spend over $1,000 a year at coffee shops, which is more than they invest!