If we are given the choice between living more frugally and earning more money, we should always choose to earn more money, so that we can afford a certain standard of living. But the truth is that it is not always about money. So in this article we are going to look at how we can save more money by changing our mindset and living more cheaply. And not living any worse for it, of course.
See also: Why saving alone won’t make you financially successful
The first step to healthy finances is a sensible head. And a sensible head often has no need for certain things, such as impressing others, keeping up with the latest fashions or comparing itself with friends and neighbours, who are not always as financially sound as they would have us believe or would like to appear.
How can we save more and live more cheaply (without being any less happy)?
1. Remove as many wants as you can from your head, and think in terms of needs
There are things we would like to have that are not a necessity. There is no reason to get rid of every want, but you need to act sensibly and focus on the things that are “genuinely necessary”.
For example, a car can be a necessity. A 30,000 euro car is a want. The 30,000 euro car will make you look better and you will impress people more, even though there is no difference in the usefulness of this asset anywhere in the range from 9,000 to 50,000 euros, because either one really just gets you from point A to point B. And that is the source of one of the main problems people have when it comes to building wealth: they spend the money they could have on trying to look like something they are not.
The same applies when you buy a television, the latest smartphone and so on. It is good to have wants and to treat ourselves now and then, but it is better to manage to be happy while living as cheaply as possible.
(See: Why keeping your old car is better for your finances)
2. Get rid of bad habits
Some habits cost money. Others cost money and your health. Avoid impulse buying (again, focus on needs rather than wants), tobacco, gambling, alcohol and even certain kinds of food. On that last point, remember that medicine is more expensive than fruit and vegetables.
You will not only save money, you will also improve your physical and mental health.
3. Try to eat out less often
If we add up the money we usually spend on eating out, we will quickly conclude that eating at home is better value, and we can eat more healthily while we are at it.
4. Cut back on what you don’t use
Extended warranties, TV packages we don’t watch, extra services we will rarely use, or the membership of a gym we go to twice a month to do what we could do at home or outdoors.
Go through all these expenses with a fine-tooth comb, because small monthly amounts add up to a large sum over the year. Follow the tips we gave for saving large amounts of money every year, where we talked about bundling services, negotiating contracts and gaining bargaining power with companies if there are several of you in the family.
5. Before financing a purchase, ask yourself whether you really need it
When someone buys a home or moves into a rented one, they obviously need furniture, and they don’t always have the money to pay for it outright. In that case, people usually finance the furniture. But perhaps you don’t need that dining set or that pretty hall table. To start with, we may be able to buy very, very cheap second-hand furniture from people who no longer need it, while you keep saving instead of loading debt onto your bank account.
6. Learn to say no to other people
If your friends’ plan is to have dinner at an expensive restaurant, to go to a concert you are not really that keen on, or even just to go to the cinema, but your gut tells you that you really can’t afford it, there is nothing wrong with saying no.
Speaking personally, there was a time when my circle of friends was very well-off, so their idea of fun was very expensive. For a few months I kept up with them, and I had never seen my bank balance fall so fast. Which brings us to the next point.
(See: 3 financial formulas that will help you achieve financial freedom)
7. Learn to have fun with things that don’t cost money
And honestly, don’t do this to save money, but to learn the lesson that, as a rule, the good things in life, the things we should appreciate, don’t cost money. If you think there is no way to feel alive without spending money, you have very probably strayed from the right path and need to readjust something in your head.
Think back and remember those wonderful moments you enjoyed, even when you were 15 or 20. They didn’t cost much, did they?
8. Think twice before getting a pet
I like pets, especially cats, but have you ever thought about how much it costs to keep a pet these days? Do the maths and think about whether it is worth it for your finances and how much it will hold back your saving.
(See: The best books on financial education)
9. Work out what your time is worth
There are many reasons to put a price on our hours before handing out any universal advice. It’s easy: we divide our income by 30 days and then by the 24 hours in a day. The result is what each hour of our time is worth.
For some people an hour is worth 0 euros, because they have no income (and, funnily enough, they are the ones who tell you they don’t have time to learn anything); for others it is worth 5 euros, for others 100 euros and for others 500,000 euros. Once you know what your time is worth, you know how much you are spending in those hours you spend watching television or having coffee with someone who bores you.
This will also help us decide whether it is cheaper to hire a professional or to do the job ourselves
Let me explain.
A very common piece of financial advice is that, whenever possible, if something in our home needs fixing, instead of calling a carpenter or a builder we should watch a couple of YouTube videos and learn to do it ourselves. The same goes for repairing an appliance, changing a bulb in the car or DIY jobs in general.
And here is the question: how much is my time worth versus how much does the repair cost? We can also ask ourselves whether, during the hours we are going to spend doing something ourselves, we could be earning money in some way. That said, if you are going to be sitting at home bored with nothing to do, and you can’t afford to pay a painter, it clearly makes more sense to paint the inside of your home yourself than to hire one.
As for the rest, this time we don’t want to go over points we have already covered.
Points we have already covered in previous articles on financial education
- Don’t take out a mortgage that is more than 30% of your income (if you’re young, don’t take out a mortgage).
- Avoid debt as much as possible, especially personal loans.
- Don’t buy things on credit when the credit lasts longer than the enjoyment of the product (for example, a two-week holiday that we will be paying off for 12 or 24 months).
- Pay off debts before investing.
- Buy something new only if you are going to throw out the old one.
For a complete, simple guide to financial education, here are 15 points that are very easy to understand.
See also: 34 money lessons young people and adults should learn
Featured image: Tine Volpert, CC BY 2.0, via Wikimedia Commons.
