4 Ways to Save 40% of Your Monthly Income
My personal finance goal is to save 40% of my monthly income.
We all have our own personal finance goals and ideas of financial success.
For me saving 40% of my income means, I can have a cash buffer that buys me time and optionality in my career to go part time or freelance, or take a year or two out to travel and try out passion projects.
Saving 40% also means I have money to invest in assets that provide a return of passive income (stocks and shares, property, bonds etc) for the future.
Finally, this saving target has forced me to stop spending all my money on sports gadgets, clothes, shoes and over priced restaurants.
I'm not at this target savings rate yet; I'm still working on it, and learning. Over the lat 5 years, I've developed the 4 strategies below to increase my savings rate.
1. Easy Saving Wins
Knowing Where my Money Is Going: The first step in this entire process is to understand where you are spending money. Fully understand what the biggest outgoings are; you can tweak all of them, from bills to food to clothes to children. If 20% of your income is going on nights out then there's a really easy place to start cutting back and saving more. Take action on these costs.
Lifestyle Inflation: we have a tendency of having "lifestyle inflation"; as your salary increases your cost of living increases. With each pay rise, my holidays used to get a little more extravagant, the restaurants a little bit more pricey, the clothes a little bit more high end. With each pay rise, extra income etc, try to maintain your previous spending habits, and bank the rest of the money.
Subconscious Saving & Investing: this is the biggest breakthrough for me. Left to my own devices, I do not move money from my current account into savings, ISAs, pensions, stocks and shares, bonds, property etc. I set all these up on standing orders and direct debits; it was super easy, and now I know I'm saving and investing. On a monthly basis money is being diversified and squirrelled away in to pots and pools of funds (see tips on subconscious saving in my blog 3 Quick Saving Strategies". This diversification leads me onto:
Starting a Pension: this is a form of pre-tax saving, if taken from your salary. The amount for your pension is "saved" into a pension pot, and then your salary is taxed, so you pay less tax and save money. Hurrah!! You need this for "future you" and your financial wellbeing. The UK is catapulting towards a pension crisis at an alarming rate of knots. We, as population, are not putting aside enough money into a pension scheme that will look after us in the future. Do not be that person.
Coupled with the above, over our lifetime the retirement age will probably go up, and the benefits down. 2017 saw much discussion over the change from the triple lock to double lock for pensions (i.e change how quickly they increase the state pension amounts in line with living costs). It's crap for state pension and people do not have enough money in their pension pots to keep them in good health upon retirement. There are three types of pensions (and I've talked about them all) being,
State pension is god awful; you cannot live on this. If you take nothing away from this post, please take away the fact that if you don't have a private or workplace pension, you retire mid sixties, and live on £159 + some savings a week until you die at 90. That amount covers accommodation, food, travel, bills etc; think about how much you spend now on travel and bills and accommodation and food. Do you want that stress in your 70s and 80s? Miserable. (Note, you only get the fully £159 if you've worked consistently through your entire working life, and taken no time off. With the rise of career breaks and time off, our generation is less likely to have committed to the full term).
I just want to take a moment to discuss debt. I have strong savings targets now. It hasn't always been like that.
Debt: There have been a couple of times I've got myself into a "financial pickle". Taking out a credit card at uni, and maxing it, without paying it off, is one such example. Debt is evil. Clearing credit cards, and then ripping them up (yes, I have no credit cards) has been one of the best things I can do, FOR ME. I forgot to pay them. I got additional interest on them. I had to pay more; that payment is dead money. It eats at my savings.
You can earn air miles, and great rewards through credit cards; if you track them and monitor them, and pay them off , then you are fine. For me, they're a red flag on my savings goals.
2. Earn Money in Many Ways
It's obviously much easier to save a higher % if you have a higher take home income per month (although that's not a reason to say you can't save anything at the moment).
Multiple Income Streams of "I Ltd"; for some reason we tend to rely on our job as the only source of income. Why? There is a high probability we can loose that, through no fault of our own, and then what?! Diversify your income stream:
- property provides rental income (I know you can't afford London, so buy in Birmingham or Manchester, and rent that out).
- shares provides dividends,
- cash provides interest (sh*t amounts at the moment, but rising interest rates should improve that)
- bonds provide yields
The above are all passive ways to earn money. Another active way to earn money is through Matched Betting, which I do most months. I've talked about it on this site (Earn More Money Matched Betting). If I'm going on holiday, personally I find it a good way to put more money into the account. At times, it's a little time consuming, but it's definitely higher than my hourly rate. If you haven't tried them, MatchedBets.com is one of the easiest ways to get into matched betting; they have great tutorials. You can sign up here. Remember though, earning more money does not mean increasing your lifestyle expenses; it means saving more.
I've covered earning more money in a number of my blogs here:
- Freelance Jobs and Freelance Sites: How to Make Money Online
- Earn More Money: Matched Betting
- Earn Money from Blogging
- Compound Interest; Say What?!
- My Top 3 Ways to Make Money on the Side
There are lots of ways to earn more money per month; online, or in the workplace through a pay rise. Passive or active income. The above links provide some examples.
Fintech: the financial technology revolution over the past 10 years has been huge. I've worked in the Fintech space for 5 years, and love it. There are some fantastic companies out there really opening up the market for consumers and their savings. The company that triggered my initial interest in investing was PropertyPartner (not necessarily fintech, more proptech, but it helps my finances). PropertyPartner allowed me to invest across multiple properties, and earn returns when these properties were rented out. It's so incredibly simple to use, and I love, love, love this company. Sign up here to try them out. Many of these fintech companies offer ISAs which provides another fun way to save money.
Coupled with Property Partner, I also really enjoy Wise Alpha, Money Box and Finimize. I talk about them in my blog "5 Technology Companies That Will Increase Your Wealth"
3. Read, Learn and Apply
(Non financial) Education: I find financial education books and literature boring; really, really, really dull. I wish I loved reading the FT or Economist, but I don't.
What I do love reading about is the psychology behind motivation, productivity and personal development; I think this has stood me in better stead than reading endless pages of financial publications. Learning about success (financially and otherwise), the meaning you place on success and the route to success has had one of the biggest and most impactful effects on my life. This has allowed me to create new spending habits, save a significant proportion of my monthly income, and most importantly, it has helped subdue my somewhat impatient and hot headed personality of wanting everything now. My three favourite books (so far) on this are:
- The Subtle Art of Not Giving a F**K: A Counterintuitive Approach to Living A Good Life
- Barking Up the Wrong Tree: The Surprising Science Behind Why Everything You Think You Know About Success is (Mostly) Wrong
- Man's Search for Meaning: The Classic Tribute to Hope from the Holocaust
See the "Reading" Section of this website for more information.
Don't Listen to the News: bold, I know. It also ties in with the above reading on the Economist and FT. If you love the news, carry on. For me, and a lot of people around me, the news is overhyped "the world is ending" bulls**t.
I went through a phase of trying to read newspapers every day to be "well informed"; I came away terrified and fearful of the constant terror / war / mass upheaval news. I even had (have) a savings pile dedicated to funding the fleeing of my family in the event of war. As Tony Robbins said on the James Archer show, the stock market falls by 10% every year, and every year the media hypes that the world is ending. Even in 2008, the world did not end. Market's move. Lets not panic unnecessarily. (check out the awesome interview here).
I'm not advocating ignorance, but moderate and question your sources of news.
Learn from different sources (maybe - dependent on the above line): I hate the news but I love well informed blogs. They're like a news filter for me. For world news and a funny three minute synopsis on what is going on in the financial markets, try Finimize.
Personally, I stumbled across the guys (I wish it were also girls, but alas, not yet) blogging about financial independence about two years ago. Reading about the financial independence movement has really opened my mind to what you can do with money. Financial independence is the ability to earn money without working i.e to have enough cashflow generated by assets that at least equal their expenses. Most of them aim to obtain financial independence to retire early.
Saving 37% a month should get me there in a relatively decent time frame, but I can't ever imagine myself not working (the emergency, get out of the UK when war appears fund needs continual top up).
My favourite financial independence blogs are:
- The Escape Artist;
- The Mad Fienist (also Scottish - hurrah);
- Monevator (possible my favourite by far, and very focused on investing); and
- Mr Money Moustache (across the pond)
They tend to live frugal lives to save, and they provide fantastic tips and tricks with what they do with their money. Some of them save up to, and over 50% of their income...pretty damn impressive.
Another way to learn is through speaking to people who have strong financial acumen, and have managed to save a significant amount of money. One of the reasons for starting my CFO (chief financial officer) series was to find a group of non biased individuals (compared to investment bankers, VC funds and wealth managers) who have strong financial insight, and interview them on their personal finance habits. They all provided some great material and companies to learn from. See the latest in the CFO series here.
4. The Magic Bullet
There is a magic bullet for success with your finances; it's called consistent small successes, and many failures. Actively doing something about your finances is the route to success; picking something and grafting away at it, committing to caring about your finances, and putting in the hard work will get you there. Everything worthwhile will take a long time. Financial goals, success or freedom, however you define them, will not happen over night. They arise from consistently putting making small changes, which in aggregate compound significantly over time.
I am not an expert; the above I'm making it up as I go along as well, but through the above 4 steps I'm getting to my financial goals.
Beautiful photos as always by the amazing www.unsplash.com