I’m Saved! Three (and-a-half) ways to save more money

This article has been written over and over again by economists, advisors, wealth-gurus and finfluencers, but there is often a really important omission that I’m not going to skirt around:

The easiest way to save more money is to earn more money.

There we go. That’s out of the way now – sort of.

This comes with a caveat: This method only works if you can avoid spending it. This is the half-way to save more.

Generally, as our income increases, so does our cost of living. The inevitability of lifestyle creep can eat away at your savings capacity as you feel that you are able (and deserve) to enjoy the slightly-more-luxurious trappings of your increased success and prosperity.

So let’s push that to one side, for just a moment. Let’s focus on how to make sure that your savings are growing, even if your income is not. That way, any additional earnings can go straight into that same pot of gold that you hope will one day have you Scrooge-McDucking a polished backstroke into a comfortable and early retirement from the world of regular employment.

To figure out how anyone can save more, and therefore build up a financial safety net and start investing to grow their money over the long term, we can identify three key problems that lead lots of people to be unable to save. Perhaps you have savings, but you want to increase the rate that you are building towards your targets. Targets! Yes! That’s another one, but we have written about this until those 6 letters are worn out on the keyboard, so I’m not going to reiterate any further here than saying set your targets and itemise them. Without a goal, savings are just coin collections.

Lots of people believe that to save and invest you need to be a natural ‘saver’ and/or have lots of money to start with. Of course, this definitely helps and gives a huge advantage to those blessed with such conditions, but it is not an absolute. I, your author here, am not a natural saver, believe it or not. I love to spend, but I use these tools to fight my nature and build savings for my family.

Alright. Enough side-tracking. Three problems that erode savings capacity and how to address them, regardless of your means:

1. There’s nothing left once I have paid for everything each month – The Penny Jar

This is a horrible position to find yourself in, and it can feel incredibly helpless. The feeling of running out of money can affect anyone, regardless of the income level. Even worse, this can feel like an impossible situation that cannot be escaped and can cause so much stress that it will adversely affect your physical and mental health. Even if you manage to save a little bit to one side, you might find that you end up digging into that to pay some other bill down the line.

I am not going to patronise. This is a tough situation, which is why I put it first, but the only way to escape from this cycle is – somewhat counter-intuitively – to add another financial target.

The reason that other expenses are preventing you from saving is that they hold a higher priority for you. That’s not your fault. You have been conditioned to believe that you need to pay everything else before you pay yourself. Of course, you must cover accommodation, food, heating, pay off debts and pay your taxes, but you must also work towards your goals – and that means identifying and prioritising them.

Everyone (or maybe everyone these days who ever visited their grandparents) knows the concept of having a penny-jar by the door where you gradually build up a vast number of coins that accumulate to something spendable. The most important factor in your grandma’s penny jar was the sticker on the front that said ‘Holiday Money’ or ‘Ice-Creams’ or ‘New Coat for Dog.’ Whatever the objective, that little label made sure that the collection of pennies didn’t end up being emptied out for some other purpose, no matter how pressing that alternative target may have been.

You can do the same, but you really need that label.

I don’t care if your jar is physical or just a title in your online banking app. I don’t care if you are dropping a literal penny into the actual jar every time you pass or adding a grand to your separate savings account every payday. It doesn’t make a difference if there is a target there and if you keep on adding a little bit each time, religiously, with as much importance as you place on paying your phone bill and your taxes. That actual or metaphorical jar will eventually be full up, you will hit your target and you will realise that you can set a bigger objective and use a bigger jar.

2. I keep spending on impulse – The Solomon Solution

Those of you who are fortunate enough to be great at saving might see this as a bit of an alien concept and might wonder why I have included it. But impulse buying is how lifestyle creep begins. Just one little thing here and one little thing there might not hurt, but it certainly doesn’t help!

So how do we drive that savings capacity and stop buying things on impulse? Simple. We don’t.

I’m serious. Trying to fight impulses is really difficult and unnatural. A much better approach is to use that impulse positively. Let me explain:

The famous story of Solomon and the two ‘mothers’ tells how the wise king suggested they split the baby in two and take half each. One woman, to protect the child, said no, and therefore she was identified as the real mother. We will apply the same priority by comparison to your money.

Whenever you have that urge to splurge and your money is burning a hole in your pocket, look at the cost of what you are about to spend your money on, and then add that same amount to your long-term, target-driven savings pot. Then – and only then – you are free to pay for that item if you want. If you have enough disposable income to make the impulse buy and add that amount to your savings, congratulations, you are the proud owner of something shiny and desirable as well as being that little bit closer to one of your financial goals. If you don’t have enough to make the purchase and the deposit at the same time, or you think that to do both would be a bit of a stretch, you should probably not do either.

People who have tried this method always find that it helps to reduce their impulse-spending, but they often also end up saving more in the short-term as they will occasionally make the purchase-adjacent-deposit (PAD – I like that term. I think it could catch on!) and then not even make the purchase they were considering, thus doubling the benefit!

3. I already save, but just not enough – The Payroll Review

This isn’t what it sounds like at first. This has very little to do with your salary, bonuses or payslips. It’s just a mentality.

Think of the payroll reviews you might have had in the past at work, where the employee sits down with the boss to discuss performance, attitude and contributions to the company.

It really doesn’t matter which side of the table you have been sitting on, just as long as you understand the concept. What we are going to do here is hold a regular review for your savings pots. This can be quarterly, annually, even weekly if you can spare the time and effort, but you play the part of the boss and we treat your savings the same way you would treat a team of employees. Treating your savings as a member of staff, working towards an objective, rather than a specific ‘investment’ will help you to see past headline growth figures of plus-or-minus percentages and understand that having a long-term member of staff, dedicated to your objectives, is much better than chopping and changing your team whenever things get tough.

If you have the budget and you feel that it is well-deserved, give that savings account a payrise or a bonus to keep it motivated. If one of your target pots has been struggling recently, think about some extra attention to help efficiency or maybe a bit of financial help to lift that team member out of their rough patch. Be a benevolent boss to your money and it will reward you over the long term, but always, absolutely, be the boss of your money.

Whether starting out and setting targets or when having reviews with your savings, remember above all that you are in charge.

If you allow money to be in charge of you, it will take control quickly, quietly and ruthlessly. Money does not care about you, so you need to take the lead in this relationship. Speak to your financial advisor about how you can implement these three (and a half) strategies and make them work towards your financial goals. Just by reading this article, you’re a little bit closer already.