When I decided to start a business (and when I knew I wanted to leave my full time job), my first task was to start saving money. I was going to need a huge chunk of change to get things started without going into debt, so I fully committed to cutting costs and saving where I could.
It’s been about two years since I started saving up, and since most of my savings went to the business, I’m still on a tight budget. If you’re trying to make big life changes - get a new job, buy a house, pay off student debt, take an expensive vacation, or start your own business, my best advice to you is to implement a budget and start saving your money. While I’m not a financial advisor, nor am I an expert on saving, these three steps allowed me to save enough money to start my business and can help you, too.
1. Save: The easiest step you can take to save money is to automatically transfer a certain amount from each paycheck into a savings account that you DO NOT TOUCH. When I started doing this, I scheduled biweekly automatic withdrawals from my checking account into my savings account on the same day that my paycheck was deposited into my checking account. I transferred $200 per paycheck into my savings account and would deposit more when I could afford it. I have a friend doing this with $100 right now and she said it’s helping. Think about it: $200 x 26 (number of paychecks per year if you’re paid every two weeks) = $5,200 If you’e saving $100, then that’s $2,600 per year that you’ll have saved.
Does $200 sound like a lot to you? If you’re a spender/shopper like I was (my motto used to be, “Money is replaceable so buy whatever you want”), then $200 doesn’t seem like much to spend on shoes or a purse or even a concert ticket. It only sounds like a lot when you’re pretending that your paycheck is $200 less than what you usually get paid. However, it’s not hard to cut out $200 - you’ll adjust to the change easily and the savings will add up quickly. It’s all about your self-discipline to save and to not touch the money that you put away. Start out transferring as much as you can afford - higher is better. You can always decrease it later if needed. Remember, you can use your savings if you absolutely need it in a dire situation, but you can’t get money back that you’ve already spent.
2. Cut costs: In addition to implementing my savings, I started cutting costs wherever I could. Here are four ways to cut costs:
Stop unnecessary beauty treatments - I stopped getting my nails done professionally, stopped dying my hair, started getting my hair cut less frequently, started doing my own eyebrows and stopped wearing as much makeup. I even tried substituting baking soda for shampoo because I thought it was a cheaper (and healthier) alternative. I recently nixed that, though - it made my hair too dry. Guys, you’re on your own with the beauty treatments.
Ditch cable television - Growing up, I could never imagine not having cable. Now I haven’t had it for three years and I don’t miss it one bit. Just be friendly with your neighbor and get their Netflix password.
Limit or substitute vacations - Try taking cheap camping trips instead of staying in a hotel. Try going somewhere new that’s within driving distance rather than flying somewhere far away. Or, explore a new part of the U.S. instead of taking that trip overseas. I definitely support overseas travel, but if you’re on a budget, you might want to save that for later (I was planning a trip to Europe last fall, but cancelled when I decided to quit my job. Instead, I roadtripped cross country, which cost about a quarter of the price to go to Europe.)
Go out less frequently - I stopped saying yes to every single invitation to go out and started looking for free events that were just as fun. I also stopped going out for brunch, lunch and dinner as much, avoided going to overpriced bars, and stopped using Uber/Lyft when I could ride my bike instead. When I did go out, I cut back on what I ordered - like not getting that extra drink with dinner or getting a cider instead of an expensive cocktail. Try packing your lunches and cooking your own dinners at home, too. Not only is this good for your wallet, but oftentimes, it’s a healthier and more attractive option. Who doesn’t love someone that can cook?!
3. Make a budget: In order to keep track of my progress while saving, I made a spreadsheet to track all my costs. This helped me monitor my spending, and although it was tedious, it turned into a game of seeing how much I could cut back on spending and how much I could save each month. I started out with the amount of money that I currently had in my checking/savings account, then I added up what I’d be making over the next few months and subtracted definite expenses (rent, bills, car payments/insurance, etc.), along with estimated expenses (food, clothing, going out, etc.). At the end of each month, I’d replace estimates on the spreadsheet with my actual costs and savings to get a more accurate projection.
Yes, you can see this on your bank and credit card statements, and yes, there are applications that can do this for you (I’ve heard “Mint” works well, but I can’t speak from experience), but by tracking my budget manually, I was well aware of the progress I was making or where I needed to cut back on spending. I felt accomplished watching my savings account grow, and it motivated me to save more each month.
A few of these tips stemmed from the book The Richest Man in Babylon. I recommend this book to all of my friends, especially those looking to take big life risks that require financial stability, so I recommend it to you, too. Buy it "used" on Amazon for $2 and it'll be the best investment you've ever made!
Hope you gained a couple good tips from my experience. Everyone should try cutting costs and saving up at some point. Worst case scenario - you save some money for a bit before going back to a lavish lifestyle.
If you’d like me to email you a copy of the spreadsheet that I created, let me know! It’s really helpful and I’ve given it out to a few friends in the past.
Good luck and happy saving!