The internet is filled with articles giving advice on how to save money. Whilst many have found good sound techniques to help you save money, chasing after every tip is time consuming and may leave you overwhelmed as to which piece of advice to follow.
Here, 5 personal finance gurus give their opinion on the best way to save money.
1) Start Saving Young and Saving Small
Clark Howard, host of The Clark Howard Show, gears his advice towards young people. He states that young people should “start off living on half of your paycheck.”
Howard points out that avoiding lifestyle inflation and continuing to live frugally beyond college can be relatively easy, but at the same time it yields significant savings. “If you’ve been used to being a student living on almost nothing, half of a paycheck from your first post-school job seems like a lot of money,” Howard said. So it is easy to just live on half your pay check and save the other half
He further goes on to state that “those who are beyond that stage of life can still work toward building a savings habit by starting small.” If you are past that time in your life, start by saving a penny of each pound that you make and step it up another penny every 6 months. In five years you will be saving 10p of every pound you make, and in ten you will be saving 20p of every pound you make.
2. Trick Yourself into Saving
Stephen Dubner, co-author of the the New York Times best-selling book “Freakonomics”, states that a key part of saving money has to do with psychology and how you mentally frame money management.
Dunber states that he is “a firm believer in tricking yourself into saving if need be, and taking advantage of what behavioral economists call mental accounting — i.e., treating different piles of money with different intentions (as much as a classical economist might scoff at that),” Dubner said. “Also, discipline really helps. Since I’m self-employed, the first thing I do when receiving any paycheck is divert the appropriate percentage into a set-aside savings account for paying taxes.”
Dubner also advises skipping a commonly used bank product: “I’ve never owned a credit card — only a charge card. Too easy to spend money you don’t have, or don’t really need to spend.”
3. Save Your Change
Ric Edelman, chairman and CEO of Edelman Financial Services offers a neat trick on how to find extra savings even on a tight budget:
Never spend change; spend only paper currency on daily expenses like coffee and lunch. By using actual physical paper bills — five pounds for an item costing £3.20, even though you have pennies in your pocket or purse — and collecting the coins, you’ll amass £20 to £30 every month, literally without even trying. This also means you need to stop using credit and debit cards so much.
4. Automate Your Savings
Farnoosh Torabi, best-selling author and personal finance expert has a simple approach to saving: “Set it and forget it.”
Torabi points out that saving with automatic transfers takes willpower and effort out of the equation. “Commit to a monthly percentage of your take-home pay that will be automatically transferred into its own account,” Torabi said. “I recommend at least 10 percent. Do this before any other financial step. Set the transfer amount, a consistent transfer date and boom — done. In a year, you’ll be shocked how much you managed to save — and with little effort!”
5. Find What Works for You
When it comes to saving or making money, “there is always some ‘low hanging fruit’ in both categories, but I think it depends on the person,” said Brandon Turner, real estate investor and co-host of the “BiggerPockets Podcast.”
Turner admitted this was a bit of a cop-out answer, but the truth remains that there are very few one-size-fits-all rules to financial success. Knowing your strengths and weaknesses can help you decide where to spend your efforts. For instance, “if you are business-minded, making money is significantly easier than saving money,” Turner said. “But not everyone is this way.”
In essence, Turner is saying that you should play on your strength. If you think making more money is easier or more logical to you than saving money, that is what you should do.