Setting yourself up for success is an easy process to understand, but requires effort and persistence to implement. For many of us, the transition to becoming a saver will happen over years.
The key is to achieve positive cash flow (you make more money than you spend). To do this you need to live below your means (less money going out than coming in).
You can do this by reducing your expenses, or by increasing your means (or both). Keep in mind, increasing your income alone will not position you to be a saver. Out spending your income is not a condition limited to any specific income range. You need to have a clear goal of what you want to achieve and the strategies that support that goal.
Strategies that may help you reduce your expenses include:
1. If you did not initiate the transaction, delay any decision on it by at least 24 hours. This means avoiding spur of the moment purchasing decisions. Always make a list of what you need before you go shopping. Buying something that you think is a “good deal”, is like tying another weight to your ankle if the net effect is that you have less money in your account due to something that was not a necessity. Online sellers are adept at the “good/time dependent deal” appeal. When shopping online, set aside your items in the “save for later” file. Wait a day (or two) then go back in and clean up your cart so that you are only getting what you need.
2. Master your budget. Use an excel spreadsheet (budget template), or just a simple pencil and paper. There are several apps out there, and your bank may have something tied to your account that will help. All that matters is that the process gives you complete visibility to your expenses, in relation to your income. As you gain this intimate knowledge of your spending habits, where you can improve will stand out to you.
3. Some regular, fixed expenses (mortgage, rent, utilities, internet subscription, etc), are best done on auto pay (bank account / credit card). For all other expenses become a cash spender (gas/clothing/food/entertainment/etc). This will help provide you a visceral association with the personal wealth you are exchanging for goods and services.
4. Avoid increasing your “standard of living” by increasing your liabilities with your income. When you begin to earn more, save a disproportionate amount. Think of this as increasing your savings faster than your lifestyle.
5. Always get a second estimate (or third) on any major expense. Price comparing will help save you money on any needed purchase.
Strategies that may help you increase your means include:
1. If your current job does not offer you more income opportunity, look at securing a second source of income (Remember, the best time to look for a second job is while you are employed. Most of us have an implicit bias that values someone more because they are currently employed).
2. If you have a skill, consider contracting it to others. Use your imagination with this. There are online platforms (intermediaries) for selling most services.
3. Consider the “gig” economy (on demand delivery <your car | your gas>, home based customer support roles, etc.).
4. Share expenses. If you are in a position to have a roommate or to split a cost with another person, Consider it. If it fits your personality and comfort level, then hosting extra space for short term use (AirBnb, etc.) might work out well.
Once you achieve positive cash flow, you have the ability to begin to build financial wealth.