New Year. New Goals. I don’t know about you, but my goal is to save as much money as possible and live a frugal lifestyle in 2021! With much of the world still shut down, it’s a perfect time to start saving on everyday expenses so that you can save up for traveling or whatever your goals are. If you’ve tried living frugally before and it didn’t pan out, maybe you weren’t implementing the right strategies. I challenge you to give it a go again this year with these 10 easy ways to start saving right now.
Table of Contents
Try a Spending Fast
I’m sure you’ve known someone who has done a food fast for either health or religious purposes, or maybe you’ve tried it yourself! Well, a spending fast is the same concept. You commit to not spending for a certain period of time. This means you don’t spend a dollar on shopping, activities, gas, or even groceries. My guess is that you probably spend at least $1 per day on something, and possibly something you wanted but didn’t actually need.
How to Get Started with a Spending Fast
Start with a 24 hour spending fast. If you succeed, then try 48 hours next time. If you succeed again, try 72 hours. Too easy? Go for a whole week! Note: Try this strategy during a week when your rent, bills, or subscription payments aren’t due, as these count as payments.
Some personal finance bloggers will suggest a whole spending fast month. I know what you’re thinking…that’s just not feasibly possible! Well the rules are a little bit different for a full month. You must restrict yourself from paying for frivolous things, like new clothes, beauty appointments, or coffee from your favorite local shop. You can, however, pay for necessities, like utilities, bills, rent, medications, limited gas, and necessary food.
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The Hard Part
So here’s the hard part. You shouldn’t just wake up in the morning and decide, I’m not going to spend a single $1 for the whole week. You do need to do a little planning to make sure you’re covered with food, medication, toiletries, etc. that you’ll actually need. Why is this the hard part? Well, you need to have self-restraint in order to only buy what is absolutely needed for those few days. It’s easy to walk into a grocery store and spend well over $100 of groceries knowing you won’t be able to go back for a few days. This takes me to tip #2.
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Track Your Spending
There are a bunch of fancy websites that can do all the expense tracking for you, like Mint, You Need a Budget (YNAB), and PocketGuard. I used Mint for years, it’s free, and honestly I loved it. It’s super easy to use as it connects to all your financial accounts and groups expenses into different buckets (i.e. car, entertainment, food, etc.). There’s still a bit of work for you to do on your own, but most of it is handled automatically.
While I definitely think using one of these softwares is better than nothing, BUT it’s easy to get into a “set it and forget it” mindset. This is a great mindset to have when it comes to your stock investments and savings, but NOT a good mindset to have when it comes to tracking expenses. What’s the use of setting up an expense tracker if you’re not even going to look at it?
Instead, I recommend using good ol’ Excel and creating a spreadsheet that works for you based on your monthly fixed costs and expenses. Each month, go through your credit card expenses and receipts and write down every purchase. Break them into categories that work for you, such as fixed expenses (rent, utilities, bills), entertainment (Netflix, movies, football games), food, etc. I write out every single charge in my spreadsheet. Yes, I know it’s extremely tedious, but I promise you, it will pay off in the long run as you’ll be much more cognizant of where every penny is disappearing to. This leads me into another one of the easy ways to start saving right now…
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Learn How to Properly Create a Budget
A couple of years ago, I decided I needed to create a budget for myself. Well, what did I do? I went to my support system, Google, and searched “creating a budget.” What I found was information about knowing what your net pay is monthly and “figuring out” how much you can spend on this and that monthly. This led me to take “educated guesses” on how much I could spend on food, entertainment, subscriptions, etc. per month. This did not work out at all. “Educated guesses” are not good enough. You need factual evidence.
Here’s the Right Way to Create a Budget
Lucky for you, you have a lot of valuable data right at your finger tips if you have credit card or bank accounts. Add up all your expenses month by month for the past 4 months to get the average of how much you’re spending on different categories each month. From here, begin by subtracting your fixed costs (monthly expenses, like rent, where there’s no wiggle room on price) from your monthly take home pay to see what you have left over for flexible costs. For example, let’s say your monthly take home pay is $2,000 after taxes. If rent, bills, and car payments comes out to $1000, then you’re left with $1,000 for flexible expenses.
Next, I recommend putting at least 10% of your take-home pay into a high yield savings account account. Note that I say 10% from your “take-home pay”, not 10% of what is leftover after you take out your fixed expenses. We’ll talk more about this later in the article, but this must be accounted for prior to calculating all your fun money. 10% of $2,000 is $200, so, now we’re left with $800.
Now, look at your Partial Fixed expenses, like food and gas – things you need, but prices vary monthly. Add up the totals in each category and divide by 4 (months) to figure out how much you’re spending on average for each. For these, I challenge you to make your budget about 10% under the average. Chances are you can probably spend less on food monthly than you are. This gives you a goal to strive for and will leave you feeling extremely accomplished once you hit that number at the end of the month. Let’s say you calculate $400 for Partial Fixed expenses per month. You’ll be left with $400 for all other expenses.
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This means you have $400 left for entertainment, going out, shopping, beauty appointments, etc. That doesn’t sound too bad to me, but we’re still not done. From here, decide which of your costs are the most important to you. For me, I love getting my nails done each month and going to the gym, so I set aside a certain amount for these costs.
The last step is to see how much you have leftover after your Fun Flex Expenses. Whatever you have leftover, let’s say $250, is used for whatever you want. This could be a new outfit, a new TV you’ve been wanting, or, you can invest that extra money into your high yield savings account account to compound your savings faster.
Learn more about how to create a budget the right way!
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Order Groceries Online
One of the best money-saving lessons I learned in 2020 was why I should be ordering groceries online, and you should too! Now, why is ordering groceries online one of the easy ways to start saving money right now?
- You’ll avoid browsing the shelves: You won’t walk into the grocery store for one thing and walk out with $100 less in your pocket. Or, buy something in store just because you can’t remember if you have any at home. When ordering online, you can look through your pantry to see exactly what you need and how much of it.
- Use coupons: Coupons should be your best friend when grocery shopping. But, let’s be real, how many of us actually take the time to look through our local newspapers and cut out coupons? Well, when ordering groceries online, there are often buttons right on the product page to save extra money or find that BOGO steal! Many of these online grocery websites will also have a “Digital Coupon” page where you can quickly scan through all the products on sale and add them to your online cart.
- Purchase history: The first time you peruse the grocery website it might take a while to find what you’re looking for (probably not as long as being in-store though). However, after your first go-around, all you have to do is click the Repurchase button. It’s so much easier than having to remember all the products and brands you purchased last time you were in-store.
- Grocery credit cards: We all have to buy groceries, so why not get a credit card that can save you money? You can automatically save it to your account when ordering groceries online. Now, you don’t have to worry about getting to the checkout line at the store just to realize you forgot to bring your grocery credit card with you.
Learn more about how you can save money by ordering groceries online.
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Set up Automatic Transfers from your Paycheck
Creating an automatic savings plan takes the guesswork out of how much you should save each month. It essentially hits your account before you have time to think about it. It’s all about the ‘set it and forget it’ mindset, unlike tracking your spending! You set up a recurring transfer into the account once and don’t think about it for months. Then, you’ll be pleasantly surprised to see how much your money has compounded, getting you that much closer to your savings goals.
If you receive direct deposit from your employer into a bank account, set up an automatic transfer from that account to a high yield savings account account. Set it up so that the money automatically transfers a couple of days after you receive your paycheck, just in case your paycheck is delayed. If you get paid weekly, transfer a smaller amount weekly. It’s better to transfer immediately after each payment than once a month and risk spending it before it makes it to your high yield savings account.
401k or 403b
If your employer offers a 401k or 403b program, set up an account with automatic contributions. A designated portion of your gross (pre-tax) monthly paychecks will automatically transfer into the account. After running my own budgeting numbers, I set my contributions to 22% per paycheck but yours might differ slightly.
Most companies offer a 401k matching program up to a certain amount. Let’s say your company offers 5% matching. This means that if you invest at least 5% of your paycheck into a 401k, your company will also put 5% into your account. But, if you only invest 3%, your company will only invest 3%. You’re essentially giving away free money, so PLEASE PLEASE PLEASE contribute at least the maximum amount that your company matches.
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Stash Your Cash in a High Yield Savings Account
If you want to be financially secure, you’ve got to start saving! It can be overwhelming to decide where to park your after-tax savings with so many banks fighting over your business. They’re dangling fancy percentages in front of you and telling you that you’ll be able to retire early if you invest in life insurance or bonds.
To avoid the hassle, many people just end up transferring money from their bank’s checking account to a traditional savings account. NO NO NO! Don’t be one of these people. And, if you already are, let’s get you set up with a better account ASAP that will make your money work for you.
Pretty much every bank and credit union has a High Yield Savings Account (HYSA). You’ll get between .5% – 1% annual return on your money, compared to a traditional savings account that may only return .05%, if not less right now. Your money deposits are protected by the FDIC or NCUA, but not the interest you make on the account. This means, you’ll never lose a single $1 you put into this account. But, that 1% interest fluctuates day to day, so you might have built up $1000 of interest and realize that it dropped to $997 the next day.
With an HYSA, there’s a lot of liquidity as you can pull money from your account at any point using a debit card or online transfer. However, this is a savings account, so you shouldn’t be pulling out money all the time. Remember, you’re saving up for those big box goals!!! Do your due diligence to see which bank has the best account options for you based on these factors:
- Annual Percentage Yield (APY): the average interest you’ll earn annually on your account
- Minimum Balance Requirements: some banks require that you maintain a minimum balance in your account at all times or you’ll be charged a fee
- Initial Deposit: some banks require that you deposit a certain amount upfront
- Don’t sign up for an HYSA that charges you monthly fees!!!
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The Long-term Reality of an HYSA
While an HYSA is one of my easy ways to start saving right now, it’s not going to build you long-term wealth. You most likely won’t be able to “retire early” with one of these accounts, because you’re only earning 1% at most a year. This is when you want to start thinking about stock investing. It’s not as “safe” as an HYSA because any money you deposit can be lost if the market crashes, but you have the potential to make A LOT more money and retire early.
I put all my after-tax savings into a cash deposit at Schwab, so that I can invest in stocks, mutual funds, and index funds with just the click of a button. I can’t speak highly enough about Schwab. They have a ton of useful information online about opening and managing accounts, as well as 24/7 customer service. In the stock market, you can earn an 8% average ROI (return on your investment) per year which is much higher than an HYSA’s 1%.
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Open an HSA or FSA account
Perhaps you’ve seen the terms HSA (Health Savings Account) and FSA (Flexible Spending Account) during your company’s open enrollment period, but have never taken the time to open one. Well, you’re not alone. They sound a lot more complicated than they actually are, so a lot of people just scan right past them. I’ve worked for the same company for over 8 years and didn’t enroll into an FSA until 2 years ago…BIG MISTAKE! I’m about to break things down to show you how HSAs and FSAs are super easy ways to start saving now.
Choosing the Right Healthcare Plan for You
Let’s first discuss why to choose one healthcare plan over another. Your employer will likely have a few different healthcare plan options. For example, one plan might have a $500 annual deductible and $2,000 annual out-of-pocket, but higher monthly costs pulled out of each paycheck. Another plan might have a $2,000 deductible and $4,000 out-of-pocket, but significantly less money pulled out of each paycheck.
Now, why would someone choose a higher deductible plan? If you rarely visit doctors, a higher deductible plan might be for you because less is pulled out of each paycheck. However, if and when you do have to go to the doctors, you’ll be paying more out of pocket for each visit.
Personally, I go with the lowest deductible plan every year as I visit doctors often. Within the first couple months of a new year, I usually hit my deductible so my insurance company BCBSIL will start paying for a portion of my healthcare visits. Once I reach my in-network out-of-pocket amount, which I do most years, my insurance will start covering every penny of any in-network healthcare costs. If you go to the doctors a lot, or foresee a big procedure next year, you should definitely sign up for a plan with the lowest deductible. Now, let’s get discuss whether an HSA and/or FSA is right for you. You can invest in both, sometimes.
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Understanding the Tax Benefits of HSAs and FSAs
The huge benefit to enrolling in both HSAs and FSAs is that they are tax breaks, because you put money in tax-free and pull money out tax-free. If you don’t understand the benefit there, think of it this way. You can either put $1000 of your hard earned pre-tax money into a health savings account to use for any medical expenses. Or, you wait until after taxes to use money for medical bills. But, from that original pre-tax $1000 you’re only left with $760 after taxes are pulled out if you’re in the 24% tax bracket. That’s a HUGE difference.
One thing to note is that if you do choose an HSA or FSA, you can’t use medical expenses as tax-write offs since you’re already getting a tax incentive.
Beginner’s Guide to an HSA
In order to qualify for an HSA, you must choose one of your high deductible healthcare plans. It should be very clearly stated on your company’s website whether you can qualify for an HSA with that plan. You can use your HSA money for any qualified medical expenses, as listed by the IRS for yourself, spouse, or dependents. The nice thing about an HSA program is that you can set it up at any point during the year, so no worries if you’re already past your open enrollment period.
You can contribute up to a certain amount annually into your HSA account. For 2021, the limits are $3,600 for an individual and $7,200 for a family. This might sound like way more than you need, but the added bonus of an HSA is that any unused money can be rolled over to the next calendar year. Or, you can invest that extra cash into certain mutual funds. Think of an HSA as a healthcare IRA. Once you hit the age of 65, your healthcare IRA turns into a traditional IRA and you can pull that money out for any uses, but you will be taxed at that point.
Here’s a great HSA calculator I like to use to estimate savings over time.
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Beginner’s Guide to an FSA
An FSA is available for you to enroll in, regardless of which healthcare plan you choose. Similar to an HSA, you put money in tax-free and can use it for qualified expenses for yourself, spouse, and dependents. The annual maximum for FSA contributions in 2021 is $2,750. This limit applies to health FSAs and Limited Purpose FSAs (LPFSAs). A big difference between an FSA and HSA is that you can’t roll over all remaining funds in an FSA. There is a max; in 2021, it’s $550.
Once your plan starts at the beginning of the year (or whenever you get hired) you’ll likely receive a debit card with the lump sum that you’ve decided to contribute. You’re free to use all of the money in your account on any qualified costs immediately. Over the course of the 12 months, a small portion of that amount will be pulled out of each paycheck.
Something interesting to note is that if you’ve used the entire amount and leave the company before the end of the year, you pretty much just got free money. Let’s say you still had $1,000 to pay off in pre-tax deductions from your paychecks. Well, you don’t have to pay back the balance; it becomes the financial responsibility of your employer.
Can you contribute to an HSA and FSA in the same year?
You can’t enroll in a standard FSA and HSA in the same year, but there are certain alternatives.
- You can apply for an LPFSA in the same year as an HSA. This saves you money on certain expenses, like dental and vision, but not on general medical or prescription drugs.
- You can have a Dependent Care FSA in the same year as an HSA plan.
- If you have multiple jobs that offer healthcare plans, you can sign up for an HSA with one company and a standard FSA with the other.
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Use the 48-Hour Rule
This is a shopping trick I created for myself years ago and it has definitely paid off. Impulse buying is our worst enemy. You may desperately think you want something in the moment, but chances are, you can probably live without it.
So here’s how the rule works. Whether you’re shopping in-store or online, when you find something you like, avoid impulse buying. Walk away and wait 48-hours. That gives you time to rethink whether you really want and need that item. We buy with emotions and usually that instant gratification is all we’re actually chasing. Have you ever purchased something and by the next day after you’ve used it once, you lose interest? This is what we want to avoid!
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Negotiate on your Bills and Subscriptions
I could easily write a whole article on this (maybe I will!) as there are lots of opportunities to get your bills cheaper. Here are just a few ideas:
Call your credit card company and negotiate a lower APR, the percentage you pay in interest if you don’t pay off your credit card on time. Don’t wait until you need this lower APR. Call them today and negotiate it down a few percentage points.
Subscription companies don’t want to lose your business outright as they know you’ll probably never come back. Call them and explain that you’re not finding value in their service and would like to see what they can do for you. Chances are, they have a cheaper subscription offer that’s not advertised. This can save you a lot of money over the course of a year.
Call your car insurance company and ask them what incentive programs they are currently running. They offer discounts like Good Driver, Good Student, Paperless Billing, and Low Mileage. They won’t tell you about a lot of these unless you ask.
Review your phone and internet bills online to see what you’re getting charged for. There will likely be some hidden fee that you’re paying for every month and don’t need. Call your company and negotiate that off your next bill. For example, I recently found out we were getting charged $15/month for international calling on my family’s phone bill. Apparently, my parents added this charge 5 years ago when they headed to Europe, but forgot to remove it. That has added up to $900 of unnecessary payments over the years.
Compare rates for your different bills. If you find a company offering lower costs, but you don’t want the hassle of switching providers, negotiate a lower price with your current provider.
Experiences over Material Possessions
Do you remember that beautiful pair of red heels you bought 10 years ago? Yeah, neither do I. Do you remember that beach bonfire you had with your best friends at sunset 10 years ago when you all were awestruck by Mother Nature’s beauty? I mean, how could you forget, right?
There’s nothing wrong with rewarding yourself every now and then. You shouldn’t feel like you have to save every single last penny, but consider spending on experiences rather than stuff. You can plan a special outing with loved ones for the same price as a T-shirt, and the memories will last much longer. Here are some unique experience ideas:
- Go for a bike ride along the beach or river
- Go for a hike and have a picnic at the top of the mountain
- Pick up a new skill together, like rollerskating, chess, or cooking
- Do an art project together.
- Pretend you’re on an episode of Nailed It and have a fun cake decorating competition.
- Create a self-guided walking tour of your own city.
- Use an outdoor wall as a screen, buy a projector and have a movie night.
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RECAP: 10 Easy Ways to Start Saving Right Now
- Try a Spending Fast
- Track Your Spending
- Learn How to Properly Create a Budget
- Order Groceries Online
- Set up Automatic Transfers from your Paycheck
- Stash Your Cash in a High Yield Savings Account
- Open an HSA or FSA account
- Use the 48-Hour Rule
- Negotiate on your Bills and Subscriptions
- Experiences over Material Possessions
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