Benjamin Franklin famously quipped that a penny saved is a penny earned.
But he was only half right. We pay taxes on our earnings, so $1 saved is more like $1.33 earned (assuming a 25 percent tax bracket).
As I mention in my book, Millionaire Teacher, one of the best ways to save money is to collect receipts for everything you buy. At the end of the day, write down your itemized costs in a spending diary (electronic or otherwise).
After doing this for a couple of months, most people are amazed at how much money they’re spending.
And because they write it down, they start feeling accountable; they start cutting back by differentiating between their wants, their needs and their wastes.
They start getting answers to the following questions:
- How much am I spending on coffee at Starbucks?
- How much did I spend on junk food this month?
- How much did I spend on gas for the car?
- How much am I spending on the family’s clothing?
- How much am I spending at restaurants?
- How much am I spending on impulse purchases?
Just remember to write down everything.
You’ll end up spending less, probably saving $100 a month or more. And that $100 a month could be equivalent to a $133 monthly salary bonus. Multiplied by 12 months, that’s $1,596 per year.
- Limit your shopping for clothes and shoes to two or three times a year while taking advantage of discount retailers like T.J. Maxx, Marshalls or their Canadian counterpart, Winners. My wife and I shop for brand name clothing once or twice a year. If we save roughly $750 on shoes and clothing each year (it’s easy to do at the discounters) that’s equivalent to an annual wage bonus of $1000 or more. Fewer trips to the mall also mean lower fuel costs for your car. And it’s better for the environment.
- Take advantage of “after season” sales for items like Christmas cards, wrapping paper, spring/summer/winter clothing and upcoming birthday presents. The best time to get a great winter coat, for example, is at the tail-end of winter. The best time to get a bathing suit is when the summer season fades. Retailers are hungry to slash prices as they make room for next season’s products. It won’t be difficult to save 50 percent off such items, if you shop for them at the right time of year. Again, this could be equivalent to a further $1000 annual salary bonus.
- If you’re buying a new television, discounters such as Best Buy can be great options. But don’t forget to try your hand at bargaining. Go with a friend (or more than one) who would also like to make a big ticket purchase or two. You’ll have more bargaining power if you’re buying more. Ask, for example, if you can get that $600 television for $550. You’ll probably get lucky. Remember that $50 saved could be more than $66 “earned”.
- We all know people who feel compelled to buy the latest and greatest tech products: the new iphone; the latest television; the new ipad or laptop. If you know somebody who’s upgrading a product (these people aren’t hard to find!) ask them what they want for the product they’re replacing. You might be surprised how cheaply they’ll let those items go—especially after they receive their credit card bills.
- If you notice a sale on the non-perishable food items you regularly buy at the supermarket, then buy as many of them as you can. This can save you hundreds of dollars a year on groceries.
- Turn down the thermostat
Wearing a pair of winter slippers can be like increasing the room temperature by 3 degrees. And according to Bill Prindle, deputy director for the American Council for an Energy Efficient Economy, turning down the thermostat 3-4 degrees can save 10 percent off your heating bill. If you turn down the temperature another 10 degrees at night, and when you leave for work in the morning, you could end up saving 15 percent.
That could add up to a $200 savings each winter, which could be equivalent to a wage bonus of $270 dollars or more.
When driving, you could end up saving a combined 10 percent in fuel costs if you do the following:
- Accelerate smoothly, instead of stomping on the gas.
- Stick to the speed limit. Wind resistance has the greatest impact on a car’s efficiency. The faster you go, the more fuel you burn.
- Limit your use of air conditioning to increase your fuel economy.
- Ensure that your tires are always set at the right pressure. If you’ve ever ridden a bicycle with slightly deflated tires, you’ll recognize how much more energy this takes.
- If your car has a roof rack, and you’re not using it, make sure you remove it. Doing so will increase your car’s aerodynamics, furthering your fuel economy.
By decreasing your fuel consumption by 10 percent, your car could (for example) travel at 30 miles per gallon, instead of 27.5 miles per gallon. If you drive 15,000 miles in a year, this could be saving of $150 a year—equivalent to a salary increase of $200 or more.
Seemingly small daily savings can make huge differences. Write down what you spend, follow some of the strategies above, and you’ll likely save thousands of dollars a year.
Applying the savings towards extra mortgage payments (or credit card debts, if you carry a balance) would have a compounding effect. You could end up saving tens of thousands or hundreds of thousands a year.
If you’re already debt free (or paying just a small mortgage) then you can put that saved money to work in the stock or bond markets—or perhaps in a carefully selected, positive cash flow rental.
Small changes can amount to huge differences.