The easiest way to increase your savings is not spending what you have got. Keep your spending low.
Control your spending in 5 easy steps:
1: Calculate how much gross income is needed to buy what you like
Gross income and net income makes a big difference. Whatever you’re thinking about buying, multiply it by 1.5x to find out how much it really costs before tax. Suddenly, it seems less affordable.
2: Calculate how many hours of work it takes to buy what you like
If you are employed and work a salaried job, pay attention to your hourly rate. Calculate how many hours are required to afford something. It is a good strategy to realize how much you have to work to actually buy something.
3: Compare yourself to other people
If you make more than $35,000 a year, you’re in the top 1% of global income earners. Appreciate what you have compared to the billions of other people who weren’t lucky enough to be born in a developed country.
4: Establish a spending goal
Whatever you want to buy, you should try to make at least X times that amount first. This might be a tough rule to stick to but it forces you to achieve certain financial goals tied to big rewards. After spending all this time earning and saving enough to reach your big goal, you might lose the desire to actually buy what you originally thought you wanted. Make your spending goals challenging so when you reach them, it’s worth the pain to make the purchase.
5: Visualize the opportunity cost of your purchase
If the stock market averages 7% a year for the next 10 years, you’ll have doubled any money you invest today in a passive stock market fund. Therefore, whatever you might buy today should be worth double in 10 years. Visualizing opportunity cost is one way to prevent spending, but it is difficult to looking so far into the future.
Increasing savings requires discipline. Follow these simple tips and you’ll see your savings account grow.
Sven Franssen