It's tough to save money through sheer will power. But taking this simple step-by-step approach can help with cutting down on your monthly expenses to increase your savings.
The simple truth is that most budgeting plans fail. Budgeting is only marginally easier than dieting, and all of us are creatures of limited willpower. Don’t feel bad if you’ve tried to budget again and again, and failed each time--we assure you, the same happens to most people. What you need to do is to change your approach.
If you plan the exact way you intend to spend money, on a spreadsheet, you are are almost guaranteed to fail. This method works very well for businesses, but it is not well suited to personal finance, because personal expenses are far less predictable. Besides, you will be miserable living on such a schedule.
Try this alternative, step-by-step approach instead:
Step 1: Remove all Automated Deductions
Cancel all services that automatically deduct from your bank account, or charge your credit card. Typical examples include MMORPG subscriptions, gym membership fees, and cable television.
Automated deductions rely on our sense of inertia (an inherent laziness to change the situation) to keep us paying for things we are better off without. From this point on, ensure you need to physically take out your wallet and issue cash, or write a cheque, for all expenses. This will keep you conscious of your spending.
Step 2: Shut Off the Credit Card Debt
The first expenses to target are credit card repayments. If you have debts coming from multiple credit cards, use a debt consolidation plan to combine all your outstanding balances into a single loan. This will lower your monthly bills significantly, as balance transfers charge much less in the way of interest than credit cards.
Step 3: Check Your Bills and Divide Them into Categories
Look through your bills, and divide your expenses into five different categories. These will differ based on how you spend, but an example would be:
Now, what you want to do is find a way to reduce expenses in each category by 10%. For example, say the expenses in games are S$180. You should aim to get this reduced to S$162. Of course it would be great if you decrease your expenditure by more than 10% (like buying one less S$60 game every month).
Related Article: 5 Hobbies with Real Money Making Potential
Step 4: Start With the Easiest Category, and Work Your Way Down
Start with the easiest category in which you are ready to make sacrifices. Once you have successfully done that, add one more category (the next easiest on the list). Keep going until you are reducing expenses on all five categories by 10%.
Note that you will sometimes fail in some categories. That’s alright, brush it off and try again next month. The wonder of this method is that, even if you fail to save in one or two categories, you are still saving money because of the others.
5. Keep Going Until You Have Shaved 50% Off the Total
You will eventually find that some categories cannot be reduced further. That’s okay, just maintain your budget in those categories. However, some others will have room for significant reduction or can even be eliminated entirely. Pay attention to these instead, and let them bear the brunt of your self-imposed austerity measures.
All that’s left to do now is stay the course, and in a year or so you should be able to drop expenses by 50% and still find your lifestyle fairly satisfactory.
You should do this until you have saved a target amount, or up to six months of your income.
Remember, Do it Slowly and By Categories
Don’t try to instantly slash your expenses in half at one go--those types of budget plans tend to last no longer than a few days.
4 Ways to Make Extra Money Off Your Flat (Besides Finding Tenants)
How to Build a Robust Emergency Fund in Singapore
Budgeting 101: Understanding Needs vs. Wants
How to Get Your Budget Back on Track After a Splurge
8 Ways to Stretch Your Budget In A One-Income Household
How Can Singaporeans Stop Living Paycheque to Paycheque?
3 Reasons Why Singaporeans Can’t Switch from Private to Subsidised Healthcare
How Any Singaporean Can Afford To Travel Every Year