Happy New Year. I hope that you’ve made a commitment to do whatever it takes to improve your financial situation this year. Making a commitment is the first step. To reach your goals, you need to take action. Although it’s commendable that you want to improve your finances, you need to know how to save money.
When I started learning about effective money management, I discovered that the obvious wasn’t so obvious. The actions you need to do are in front of your face, yet you might not be able to see them. That was definitely applicable to me. I kept doing things that held me back from saving money, yet I couldn’t figure out why I wasn’t progressing financially.
Once I analysed my course of action and compared it to what financially successful people did, the problems were evident.
I Cared About Status and Comfort
I loved the feeling that I got when I pulled up to a traffic light in my sports BMW and people looked impressed. Mind you, I was also in my mid-20s when I owned that car. So that gave me an extra ego boost. I also enjoyed that people commented positively about me living in an upmarket neighbourhood.
Having the latest iPhone and iPad models made me feel like I was a cut above the rest. But it was completely in my head.
Those possessions portrayed to others that I was somewhat successful. What people didn’t know is that I used borrowed money to fund that lifestyle. I couldn’t afford it. I enjoyed people being impressed by my possessions more than saving money. If saving money had been the no.1 priority, I wouldn’t have taken out loans.
The material possessions provided me with the status that I hadn’t earned because I funded that lifestyle with debt. But they also provided me with comfort. It was more comfortable to drive a car with leather seats than to take public transportation. Living in an upmarket area that was close to work and having a short commute was more comfortable than living further away in a cheaper area.
To start saving money, you’ll have to abandon seeking status that you can’t afford and become uncomfortable.
After I cleaned up my act, I used public transportation, sold my phones and rented a room from an elderly couple. It was less comfortable for me to share a living space than to have it all to myself, but I did whatever was necessary to lower my expenses so I could save money.
I Had too Much Debt
It’s almost impossible to save money when you use most of your income to pay creditors. That leaves you with very little money for food, utilities, school and other expenses necessary for survival. This is the position that most people are in. They simply cannot afford their lifestyle, so they take out more debt to keep their heads above water.
I had various kinds of debt to fund the lifestyle that I couldn’t afford. And when my income decreased, which resulted in a bigger deficit of my finances, I took out another debt.
You can’t get out of a hole by digging it deeper.
I stopped taking out more debt. But that wasn’t enough. Because I lived above my means, I needed to pay off debt as soon as possible. Even by paying off one of the loans, I would have more money. Since I didn’t get a raise or a higher-paying job immediately, I lowered my expenses. That was the only way to have more money at the end of the month to dedicate to debt.
I wanted to pay off all of my debt as quickly as possible. By not having any payments to creditors, I knew that I would save a large portion of my salary.
It took me about six years to pay off all my debt. Once I was debt-free, I managed to save 90% of my salary. How was that possible? Not only did I no longer have monthly loan payments, but I had decreased my living expenses while paying off debt and had gotten used to living that lifestyle, which I kept up, even when I had more disposable income.
Make a list of all of your living expenses and determine which ones you can eliminate. Even the ones that are crucial for survival, look for ways to reduce them. By reducing your lifestyle, you can dedicate more money to debt so you can pay it faster.
I Conditioned Myself to Spend
To save money, you need to be a saver. Most people experiencing financial difficulty are spenders. How do you know if you’re a saver or a spender? Look at your bank account.
Our daily actions develop into habits over time. If you want to lose weight, you’ll have to eat correctly and train consistently over a period of time that is required for you to lose your desired weight. That’s the exact same thing with money. If you want to save money, you’re going to have to do it consistently over a specific period.
Decreasing your living expenses will provide you with money to save. But an increase in income will likely not help you save money because you’ve conditioned yourself to spend. The first thing that a spender thinks when he/she gets more money is, ‘Great, I now have more money to spend.’ Regardless of how much a spender’s income increases, they never have money to save because they always find a way to spend it.
The way to know that you’ve transitioned to a saver is when you receive more money, you think, ‘Great, now I’ve got more money to save and invest.’
If you’d like to become a saver but have no money left over at the end of the month to save, you need to decrease your expenses and pay off your debt.
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