Keep a spending diary.
This is amazingly simple advice, yet few people do it. Whenever I've kept a spending diary I've carried a notebook around with me and noted every last cent of spending. The modern way of keeping a spending diary is to get an Android or iPhone spending diary app so that you can enter spending as you do it and download it to your computer to slice and dice the results. At the end of your financial month it's a matter of adding up the totals and analysing your spending.
Many people are shocked at what they find, says Cringle. Some people say they don't need a spending diary because they can look at their bank accounts and credit card statements to get an overview of what they're spending. These statements can even be downloaded into personal finance software such as XeroPersonal, Heaps.co.nz, or Watch My Budget. That doesn't tell you the entire picture, however.
It's the $1.50, $5 or $10 here and there in cash that really add up. When analysing your spending diary, linking like payments is important. Cringle says some people who attend the CAP Money courses don't realise exactly how much they're spending on their hair, for example. They probably buy some products at the supermarket, others at the pharmacy and still more at the salon.
Put systems in place.
Making changes in life - be it saving more, losing weight, or improving time management - requires systems. "Systems create behaviour," says Cringle. Those systems can include: having a budget, setting up a long-term savings plan and setting goals. Or they can be about the way you do things, such as delaying buying consumer goods, or a monthly spending debrief with loved ones.
When it comes to setting up systems for savings, work backwards. Know when and how much you will need to spend - whether it's on the insurance, or in fact in retirement. From there work out how much you need to save each week or year to meet the target.
Get the banking and payments structure right.
If you haven't already, start off by getting the structure of your accounts right. Instead of having one current account and possibly a savings account, set up accounts for bills, spending and saving. Have the bills and savings money deposited straight into the relevant account or transferred automatically at the beginning of the financial month. Having a number of accounts allows you to review more easily your spending in those categories. Transfer a regular amount each month to smooth out the rises and falls during the year. This can probably be organised over the phone - today.
Set a savings goal for the year.
Know how much you're going to save this year at the beginning of the year and tie that in with your long-term savings plan.
Don't do things just because you're middle-class. You've made it. You've got a well-paying job, a nice house, the car to go with it and so on. The words "I deserve it" are real savings stallers. That's no excuse to spend your entire income and more.
Cringle points out that earning more doesn't necessarily equate to saving more. People who earn more can spend more on credit. Last week I interviewed Anton Nadilo of My Money Mentor and he told me a story I've heard in many guises before, of a husband and wife earning more than $200,000 yet still living beyond their means. The important point here is that the high-earning years don't go on forever.
Learn to shop around.
Saving more requires thought and reflection. Start by looking at your utilities bills and other regular expenses such as petrol. Visit websites such as Consumer Powerswitch and see if it's worth switching energy companies. You might even save by simply calling your supplier to see if there's a better package you could be on. Shopping around is a great idea for small and large purchases. Beware, however: it's important to be wary of the cost of petrol and time and, conversely, of using those costs as an excuse to pay full price. Not buying the item is a radical alternative as well.
Be honest with yourself.
It's all too easy to come up with excuses why you're different. Perhaps your morning coffee is your sanity time, you buy takeaways because you work long hours, Coca Cola really is an essential grocery item, you don't earn enough to save, you "need" a new car because an old one "might" break down, you'd be happier if you had an extension built on your home, and so on.
Are you really, from the bottom of your heart, being honest with yourself? There are many ways to be dishonest. Even a spending diary can be manipulated. Do you, for example, separate cafe, takeaways and restaurant eating into different categories? Or add cigarettes and wine to the grocery category?
Spend less at the supermarket.
When I queue at the checkout I take the time to inspect the next person's trolley - especially when I'm shopping in a suburb or town other than my own. I can assure my readers that the vast majority of Kiwis aren't having trouble putting essentials on the table. Or they simply don't understand what essentials are - which may be more to the point.
Ironically, spending less and eating better often go hand in hand. There are all sorts of resources available to help people to cut their supermarket bills.
Write shopping lists and plan meals. That will save money as well as time. Comparing the costs of food you buy and questioning what are basics and luxuries is essential to keeping the supermarket spend down. Consider the price per unit of everything you buy and whether it's offering good value for money.
Save money on holiday.
Cringle says all too many Kiwis put their holidays on the credit card. The wealthier the people, the more expensive the holiday. Putting the systems in place will help you save for those holidays, which will in turn make them less stressful.
Even once on holiday, there are ways to spend less. Holidays are one of our biggest annual expenses. "Damn it, I'm on holiday" is another one of those "I deserve it" excuses. Applying some thought and reflection to them can pay off.
Cringle, for example, had a couple who didn't realise how much they were spending annually on their timeshare holiday. They decided to ditch the timeshare and take a cheaper annual holiday.
Use 'back to the future' budgeting.
Back in the days before Eftpos, credit cards, online transfers, direct debits and so on, people used envelopes for budgeting. They received their pay in cash and split it into envelopes for different categories of spending.
When I wrote a "back to the future" blog about this I had some readers email and say they'd reverted to this method and it worked for them. The idea is that once the cash is gone, it's gone, and they wait until next pay day before spending in that category again.
CAP Money teachers and many budget advisers recommend this. Cringle says research shows people who spend cash will spend less than those using electronic payments.
