10 Really Cool Money Saving Tips

While we think that sav­ing money is about pen­cil push­ing and research and math; in fact, it is as much about build­ing self-discipline, and know­ing your­self. Basic to money man­age­ment for exam­ple is that you shouldn’t spend more than you earn. It doesn’t take an Ein­stein to fig­ure that out. But behind this very sim­ple eco­nom­ics is a psy­chol­ogy and phi­los­o­phy of money. We have to change the way we look at money and the way we look at our­selves in order for this to really work.

As many of us have found out–and often, we real­ize this only when we are heav­ily in debt–to spend less than we earn is so much harder than it looks.

Here are ten tips from Rob Ben­nett of Pas­sion Sav­ing..

1) Pur­sue short-term sav­ing goals. This is also true with life in gen­eral, but if you want to be more suc­cess­ful with over-all, big goals, try to divide them into man­age­able chunks. While sav­ing for retire­ment may be the ulti­mate goal, it’s not always a moti­va­tional one. Find sav­ing goals that can be com­pleted in just a few years or months. These easy wins give you the psy­cho­log­i­cal push to pur­sue the more dif­fi­cult goals.

2) Don’t save in pur­suit of vague and gen­eral goals — save in pur­suit of a par­tic­u­lar change to enhance your life. Make sav­ings mat­ter by set­ting money aside for lots of spe­cific lit­tle things through­out the course of your life­time. You’re not just sav­ing to be able to do what you want at the end of your life, but to also to be able to do the things you want today.

3) Pur­sue intensely per­sonal goals. “The trick to becom­ing an effec­tive saver is iden­ti­fy­ing [with some­thing, a] sav­ing goal that pro­vides you with the moti­va­tion needed to get the job done,” Ben­nett writes. “To save well, you need to direct your money man­age­ment ener­gies to the pur­suit of a goal that hits your emo­tional hot buttons.”

4) Stop think­ing of sav­ing as some­thing that only misers do well. “There’s noth­ing small or cheap or sick about effec­tive sav­ing,” writes Ben­nett. “Not if you’re doing it right. Save for the right sorts of rea­sons — life-enhancing rea­sons — and you will no longer think of sav­ing as miserly.”

5) Don’t pay your­self first. Instead, pay your­self last. This rec­om­men­da­tion sets a sacred personal-finance mantra on its ear. Ben­nett says that think­ing of sav­ings as some­thing that must be endured makes it seem like eat­ing your least-favorite veg­etable. “Pay your­self first” might be a good way to start sav­ing, but to really make it effec­tive, you must learn to see sav­ing as fun. You need to pay your­self last — and often. Reduce your spend­ing so there’s as much as pos­si­ble left to save.

6) Trans­late dol­lars (or pesos) spent into the hours you worked to earn those. This is straight from Your Money or Your Life. Time lit­er­ally is money. Each dol­lar in your pay­check rep­re­sents some amount of time it took for you to earn it. (And it’s not just your hourly wage.) Fig­ure out how much time a dol­lar is actu­ally worth to you, and you can begin to see your expenses in a whole new light. Is that new dig­i­tal cam­era really worth a week at the office?

7) Include income tax when deter­min­ing how much it costs to buy things. Ben­jamin Franklin was wrong when he said “a penny saved is a penny earned”. When you con­sider taxes, a penny saved is usu­ally closer to a penny-and-a-half earned. You have to earn $300 pre-tax to afford the $200 post-tax you need for an iPod. Men­tally account­ing for the income tax on the money you earn can help pre­vent you from spend­ing it!

8) Use the multiply-by-25 rule to deter­mine how much it takes to finance “for life” each of your spend­ing cat­e­gories. This one’s a lit­tle eso­teric. We haven’t talked much about early retire­ment and “safe with­drawal rates” yet at Get Rich Slowly, but roughly it’s assumed that a per­son can pull about 4% from saved assets each year with­out deplet­ing them. For every $1000 you invest, you can the­o­ret­i­cally with­draw $40 per year (which is 4%, or 1/25^th) with­out touch­ing your start­ing cap­i­tal. So, if you spend $40/year on a news­pa­per sub­scrip­tion, $1000 in sav­ings pays for that sub­scrip­tion for the rest of your life.

9) Remem­ber that you only have a lim­ited amount of income avail­able for sav­ing; when you spend this money, you’re depriv­ing your­self of future free­dom. Don’t think of the money you spend as a per­cent­age of your total income. Think of it instead as a per­cent­age of your poten­tial sav­ings. If you buy one videogame a month, it might only be 2% of your take-home pay, but it could very well rep­re­sent 25% of your poten­tial savings.

10) Focus on get­ting over the $100,000 hump. “Sav­ing your first $100,000 is hard,” Ben­nett writes. “But the sec­ond $100,000 comes eas­ier.” When you focus on hav­ing to save a mil­lion dol­lars (or some other huge num­ber) for retire­ment, it can seem daunt­ing. Focus instead on the first $100,000, and the skills you learn will help you save the rest. (I have to say that even $100,000 seems huge to me — I’ll focus on smaller “humps” for now.)