Stop Spending and Start Saving

May 20, 2013
Americans notoriously love to spend money. Whether it's a bigger house, a fancier car, or the latest technological gadgets, U.S. consumers have no problem opening up their wallets and laying out the cash (or credit card) for new purchases. Our culture is literally driven by consumer spending- it accounts for about 70% of the Gross National Product (GNP) in this country.

Unfortunately, Americans don't have the same passion for saving. Even after the financial meltdown in 2008, consumers today are saving even less than before. When you consider the current economic conditions, including still-high unemployment and overall job insecurity, that fact seems rather hard to believe.

But recent studies confirm what most financial experts have long thought. American consumers have little or no back-up plan for when unexpected money emergencies occur (and they always do). Research conducted by reported that nearly half (41%) of the individuals polled had less than $500 in easily-accessible cash saved up. Nearly the same number of consumers (45%) said that they have serious doubts about being able to save much money at all.

So how are you supposed to change things up and make serious financial headway in a culture such as ours? How do you go from being a spender to a saver? The good news is it's never too late to start. Small changes can bring about huge results. It will take time, energy, and determination on your part but becoming financially independent and having substantial savings are definitely within your reach!

How to Begin
There's a saying which goes "When you're in a hole, stop digging". It sounds simple enough but for whatever reason, people have a hard time plugging the money-leaks. Much of this may be due to the fact that millions of American consumers have no idea where their money goes each month. If this describes your financial situation, don't panic. You have a lot of company. Here's what you need to do:
  • Get two sheets of paper.
  • Mark one "income".
  • Mark the other "expenses".
On the income sheet, write down all your sources of monthly income. Calculate this using your take-home pay (after all deductions). Now write down every monthly expense you have. This may include rent (or mortgage), all utilities, car payment(s), insurance, fuel costs, food, credit card bills, entertainment, and any other regular monthly bill.

If you don't already have a budget you need to put one together immediately. You can't stop bleeding money if you're in the dark about where it's going. It is virtually impossible to achieve financial independence (no debts, ample savings) without a realistic budget in place.

Hopefully your income total exceeds your expenses, but that doesn't always happen. The most important thing at this point is to get a clear picture of your financial situation and go from there.

What's Next
After seeing your income and expenses written down in black and white you should have a better understanding of your actual financial situation. If you are one of the millions of people who have never kept a close eye on your finances, this exercise may be a shocking wake-up call.

But don't despair! You might have discovered that you have more money going out than coming in… this is an extremely common situation but thankfully not one that cannot be overcome. Keep reminding yourself how good it is going to feel to not owe money to creditors. Have a picture in your mind of what your life will be like with no financial worries- no sleepless nights stressing about paying your bills, having an emergency fund for life's unexpected money needs, and providing you and your family with REAL security- the kind that comes with making smart choices about your finances.

Common Money-Wasters
There are many ways people waste money. Focusing on what you are spending allows you to see where you can make significant cuts. You can use the money you save to begin building your savings and getting out of debt more quickly.

The following spending habits may be draining your bank account so be alert to them and make positive changes:
  • Paying late fees/penalties on bills. Most companies now have online billing and payment services available. Take advantage of these. There is no excuse to pay even MORE money to your creditors just because you can't remember when a bill is due. Americans pay almost $22 billion a year in late fees and penalties. Take control.

  • Going out for breakfast and lunch every day. If you spend just $5 a day on coffee, that adds up to nearly $1100 a year! Make your own coffee at home and take it with you. If you eat out for lunch 5 days a week you're spending nearly $2000 a year. Try bringing your lunch a few days a week. Remember, small changes add up to big savings.

  • Paying for newspaper and magazine subscriptions. The latest up-to-date news is available for free over the internet. Do you really need a pile of magazines collecting dust on the table? Access articles online at no cost.

  • Dining out. Sure, everyone enjoys a nice meal out. But if you eat out more than you eat at home the chances are your budget is taking a huge hit! Limit yourself to once or twice a month. Preparing your meals at home is almost always less expensive than dining at a restaurant. Plus you can choose the freshest ingredients and control the portions when you fix meals yourself.

  • Paying for a gym membership. It's a known fact that people sign up for gym memberships at the beginning of each year. All those New Year's resolutions make for very good intentions! But the reality is that the majority of people end up never going to the gym and the only thing that gets thinner is their wallet. Exercise is certainly important so find inexpensive ways to incorporate it into your life- walk or jog around your neighborhood, get DVDs and do your workouts at home, check out your local YMCA. You don't have to pay for a fancy gym membership to stay fit.

  • Buying bottled water. Americans literally spend a fortune each year on bottled water. Buy a filter for your faucet or one of the pitchers with a filter. Either works perfectly fine and there isn't a mountain of plastic to recycle every week.

  • Using credit to purchase things you can't afford. Try living on a cash-only basis. Studies show that consumers who pay for purchases with cash tend to be less impulsive. How many times have you bought something with your credit card only to wonder a few days later "What was I thinking?". Use the 72-hour rule (or whatever time frame works for you). Give yourself a specific amount of time to consider an item before you buy it. The odds are you won't even want it a few days down the road.

Now What?
Always stay focused on your ultimate goal- financial freedom. The reason you are finding ways to save money is to build your overall savings. You're not saving up to blow it on a big purchase.

One of the most essential parts of your strategy should be to have an emergency fund. It needs to be easily accessible and should contain as a minimum three to six months worth of living expenses. You need to look at your own personal financial situation to determine this number. Remember- you can never have too much savings.

Once your emergency fund is firmly established, you can begin working to pay off your outstanding debt. List all of your creditors along with how much you owe and the interest rate on each debt. Your list should start with the loan with the highest interest rate, then the next highest rate, etc. Pay as much as possible to the loan at the top of the list and just make the minimum payments on the remaining ones. Once the high-interest loan is paid off, start putting more money towards the next one. Continue with this process until your outstanding debts are completely gone.

Everyone's situation is different and the amount of time it takes to become debt-free and have significant savings will vary according to each individual's income level, amount of debt, and other factors. The suggestions offered here are just a starting point. Look for different ways to save on your own expenses. There are no hard and fast rules when it comes to changing the way you look at your finances. It's really as simple as spending less than you make. Once you learn to live below your means, your overall financial picture should improve greatly!