Since we started saving over half our income, our budget has slightly changed. We now shop less, eat out less, buy less, but that’s all good things!
We buy a lot less stuff, but we value experiences a lot more anyways. We still travel a lot, eat out in amazing restaurants, and do fun activities… We just spend way less time at the mall. A huge thing that helped us a lot with this is cutting out advertising. We cut the cable and now exclusively use Netflix, we enabled adblocker on our browsers, and we listen to podcasts or Spotify instead of radio. Those small changes can actually change your purchasing habits. Marketers have been at this for decades, they know how to get you to buy stuff.
Consumerism is through the roof in America and there are no signs of slowing down. Even for exorbitantly expensive products like the new thousand dollars iPhone, people are lining up and cannot get enough of it. According to analyst Ming-Chi Kuo, Apple will be shipping 40 million iPhones X this year and between 80 million and 90 million in 2018.
People stuck in a consumerist lifestyle.
Now, this is a huge number! Over 120 million phones at a thousand dollars a pop! No wonder credit card company stocks are all up over 30% this year. When you think about it, there is no way so many people can justify throwing over a thousand dollars on a gadget that will be out of fashion next year. Most of these purchases will, unfortunately, end up as outstanding credit card balances.
Over one hundreds of millions of Americans carry credit card debt and the national average per household (as of 2016) stands at $8,377. Now, this is another huge number! Using that amount and the average credit card interest rate that ranges anywhere between 15% and 20%, we can estimate that the average household pays anywhere between $1256 and $1675 in interest per year. That’s an iPhone and a half just in interest! Every year.
If you were to buy that iPhone on a credit card an choose to just pay the minimum payment (2% of the balance) it would take you over 6 years to pay it off and you would end up paying over $1500 for it instead of the regular price tag.
If you can afford this phone and it works out in your budget, go ahead, but please don’t put yourself in a bad financial situation just to keep up with the Jones. Instead, we prefer keeping up our savings rate!
Buying less stuff and saving over half our income is not a huge sacrifice for us, it is simply our new way of life. We decluttered our house and constantly try to keep our shopping activities to the minimum. Focusing on cutting down those expenses where we used to spend the most; Housing, Transportation, and Food. With little tweaks here and there, we were slowly able to save a bit more by the end of the month.
Here is the secret; no one starts an extreme diet like the Strawberry Diet and keeps up with it. Going cold turkey and jumping into something drastic like eating only strawberries as a meal rarely works over the long-term and the same goes for your finances. Don’t go from a paycheck to paycheck lifestyle, where you spend every penny you earn, to a high-saver diet, where you try to save over half your income. It just will not last. You are best to take small steps and slowly change your lifestyle to increase your savings rate.
Small steps to big savings
- Start with clear goals. Know what you are saving for and then aim even a little higher. No goals are too far to reach.
- Make a budget in line with those goals and follow it. We suggest free tools such as Mint or Personal Capital to track your finances.
- Take a deep look at your monthly expenses. The latte here and there or the avocado toasts will not make or break your budget but a $600+ a month car payment might. Cars and Housing expenses are the hardest to change but anything can be done. Never think that you are stuck somewhere or that you ought to keep your car. In the end, it’s just stuff.
- Cut down a bit, one expense at the time. If you go out to eat every week, try to go every second week… If you have a huge house, try renting out some rooms like we did…
- Make it a habit to save and invest. Try to set up most of your savings on autopilot. We set aside an amount at every paycheck and it just invests itself automatically. This takes the emotions out of investing.
- Also, make it a habit to live with less. The less stuff you need, the more you can save. Cut the ads out of your life and acknowledge how marketers are affecting you.
- Finally, stay on top of things! Actively look through your statements every month (or through Personal Capital) and know where you are standing.
As you go, slowly increase your savings rate until it is enough to attain your goals in a reasonable timeframe. No matter what stage you are at, all these steps can be applied. They work just as well if you are carrying a lot of debt and trying to pay it off or if you are saving for your first million.
Being in debt is not fun. Feeling trapped can sometimes be overwhelming and becoming debt-free is a huge milestone that you should appreciate and celebrate. One extra step we would add here if you are carrying debt is to look around and refinance your debt to a lower interest rate. We recommend SoFi to save thousands on your student loans, consumer debt, or mortgage.
Once you start saving, start growing your money. As our friend Slow Dad puts it, “There is a huge opportunity cost associated with squirreling money away in the bank or under the mattress, as that same money could be invested productively and put to work”.
He personally keeps enough cash on hand for day to day expenses and keeps an emergency fund for genuine emergencies like disaster or accidents. Everything else is invested. He also suggests viewing any savings you are putting aside for a future expense such as a wedding, a holiday, or a car purchase, as deferred spending rather than savings.
All these small steps should get you very far. Good luck, Xyz.