Here I’ll share a technique that I’ve used many a time over the years to help me “find” “extra” dollars I did not realize I had, dollars that I can put towards a savings goal I have in mind.
We can either boost our earnings and put those extra dollars toward our goal – which I strongly recommend doing whenever you get an increase in pay – or we can cut our spending, and put those unspent dollars toward our savings goals.
Since it’s not always so easy to increase our income, I recommend starting with the spending end first. It has the added benefit of helping us become more disciplined in our overall money habits.
Of course, most of us think we already have cut everything to the bone, budget-wise, and honestly cannot think of any more ways to save.
That may be the case. But I’ve found more often than not that there are areas where I can afford to cut back if I just change my priorities a bit.
STEP 1 - Identify Where You Are Spending Money
First you need to be able to see where exactly you are spending your money.
Obviously, you know the big ticket monthly items, such as rent, car payments, and loan payments. But many of us do not have a firm handle on all the other, smaller, incidental purchases that we make, such as gasoline, toiletries, coffee, groceries, snacks and meals out, etc.
Every Time You Spend Money, Write It Down
So a good starting point in any savings plan is to try to identify those costs by writing down everything you spend every day for a month. That includes every cash, debit card, check, or credit card expenditure.
Keep a little notebook with you in your pocket or purse, or use your smart phone to make a note every time you buy anything or make a payment for something.
But I'm a proponent of the simple paper and pencil routine. It's old-school, but it works.
Either way, I consider it helpful to enter or jot everything down immediately after the transaction, rather than waiting until the end of the day.
Otherwise it’s too easy to lose track or forget a purchase altogether.
And it’s also important not to change your spending habits at all during this time. Simply behave as you always do so that you get a realistic result.
If you have a household or business money management program such as Quicken, Quickbooks, or similar, it will break it down for you.
Some credit cards also provide summaries that categorize expenses, which can be very helpful.
But you can also just do it yourself, using Microsoft Excel or Google Spreadsheets, or simply a calculator and a handwritten table.
What’s interesting is that often when you do a comparison between your handwritten list and your monthly statements from the bank or credit card company, you will discover expenditures that you cannot account for, or completely forgot about.
This is the type of reflexive impulse purchase that can really add up over time and wreak havoc on a savings plan.
Step 3 - Identify Areas Where You Can Cut Back on Spending
You may be quite shocked to see exactly how much more you are spending in some areas than you ever realized.
For example, sometimes we think we are spending only occasionally on something, only to discover that we’re actually doing it several times a week so that the total is substantially more than we knew.
And sometimes we don’t recognize how the daily expenses accumulate, even when they are relatively small ones.
That $3 expenditure for Starbucks coffee has added up to to $30-$50 by the end of the month. Those little extra trips to the grocery store have amounted to $40 more spent on groceries over the course of a month.
Those take-out lunches at $6 a pop suddenly look a lot more expensive when seen at the end of the month as a cumulative $100 expense.
Identifying where you are spending your money is an essential step in determining where you can cut back.
Decide on the amount that you’d like to shave off your bills.
Then make arrangements to set that amount aside in a separate savings account at the beginning of the month -- or as soon as you get your paycheck.
I recommend doing it immediately and into a separate account before it becomes a temptation to spend it.
Or if you don't trust yourself to do it, then check out this article about various apps available to help you.
Better yet, if your employer offers it, have the amount deducted from your paycheck before you even see it, and deposited into a credit union or savings account.
Keep this up, and you will see savings begin to accumulate, sometimes quite quickly.
And if you have the good fortune to combine it with increased earnings, that’s all the better. Either way, I’m betting you’ll find the results quite gratifying.