How To Build Wealth By Saving Money Without Sacrificing Your Livelihood

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Let’s face it. There are only 2 ways to build wealth. Either you can make more money or you can save more money. In a previous article, I already discussed why you should worry about your topline more than your bottom line.

But just because you’re focusing on making money doesn’t mean you should neglect saving either. For most people, saving money is easier than making money because all aspects of saving it are under your control.

So why is it so hard to cut back for most people? Unfortunately, the answer is not clear cut. There are many personality issues and external factors involved that can not be easily controlled.

However while you can’t change your current disposition, there are many steps that you can take to mentally prepare yourself to save. Unlike other articles on how to save money, this article isn’t going to focus on specific things that you can do to cut back expenditures. Instead, this post will explore ways to psychologically incline you to save more.

Make It As Easy As Possible To Know Where Your Money Is Spent

You can’t even begin to save a dime until you know exactly where your money is going. A lot of people advocate paying for everything in cash. Cash is just about the hardest thing to keep track of. You spend a little bit here, you spend a bit there and pretty soon you can’t remember where all of it went at the end of the day.

If you’re forced to obtain and keep receipts as a means of tracking your spending, you’ll never have the energy to manually enter and keep track of that information for an extended period of time. The more work you have to put into it, the easier it is to slack off.

To facilitate the tracking of your expenditures, I recommend using a check card or some form of electronic payment that doesn’t involve using credit. This way, you can easily download a spreadsheet of your spending destinations in a matter of seconds.

Use Software To Keep Track Of Your Finances

If all of your purchases are electronic and easily traceable, you can use a computer program to help aggregate and organize all of your spending data. While I strongly recommend a program like Quicken, there are a wide variety of software programs available to help you track your finances.

Financial planning software will automatically categorize your purchases and allow you to analyze exactly where you are spending all of your hard earned cash. The software will also allow you to track your progress of how much you are saving over time.

The key benefit of Quicken is that it is linked directly to all of your banks and credit cards. With one touch of a button, you can download all of your purchases for a given time period. This will allow you have instant access to every single purchase, withdrawal and deposit to every single one of your bank accounts in a matter of seconds.

Forget about aggregating and typing in receipts by hand. That is way too much work and you won’t be able to keep it up.

Plan Your Attack

Once you know your top spending categories, it’s time to figure out a savings plan. Attack your largest spending categories first because they will have the greatest impact on your savings potential. Personally, my wife and I have a lot of trouble controlling 3 items, entertainment costs, going out to eat costs and personal shopping costs.

To help combat these spending black holes, we devised a plan of attack. This is how we did it.

We Used Check Cards And Bank Accounts That Don’t Allow Immediate Withdrawals

The foundation of our savings strategy is predicated on check cards and bank accounts that don’t allow you to withdraw money quickly. The first thing my wife and I did was to change the direct deposit of our paychecks to a bank like ING or Emigrant Direct.

For all of you who are not familiar with these names, these banks are internet banks that offer a high rate of interest. The catch is that these banks don’t offer ATM cards or checking accounts so you have to manually transfer money to your checking account before you can actually use the money.

Sometimes transferring the money can take as long as 5 days to complete. This imposes a mandatory waiting period on obtaining your cash.

At the beginning of every month, we withdraw a fixed amount of money from our internet savings accounts and place the money in our respective checking accounts. This money is our budget for the month.

By using only check cards, we are forced to only spend the amount in our checking accounts. If we end up spending all of our money, we have to confer with each other and approve another withdrawal from the internet bank.

The beauty of using the internet bank is that even if we want the money badly, we still have to wait 2 to 5 days to get the cash. This 2 to 5 day waiting period has the effect slowing spending down drastically in itself.

We Imposed A Mandatory Waiting Period On Purchases

The first thing we tried to address was our frivolous spending habits. One thing we discovered about our personalities was that often times if we waited a certain period of time after wanting to purchase an item, that we no longer had the desire to purchase it.

For example, I might be browsing the aisles of Best Buy and have the itch to purchase a new DVD. But if I just went home and waited a day, I would no longer have the drive to go back and buy it.

This waiting period response gave my wife and I a great idea. Whenever we wanted to buy something, we would wait a period of 10 days before making the purchase. If we really wanted the item, we would then consider purchasing it.

In practice, I would say that 90% of the time, we would never go back to complete the order.

We Kept The Fridge Stocked

My wife and I love going out to eat so this was probably the most difficult expense to reduce. Our main problem was that we love good food so much that we weren’t willing to compromise very much in this category.

Given that we don’t cook very well, we needed to find a way to eat well and still reduce our food budget. It was quite the dilemma.

What we ended up doing was we stocked our fridge with the exact same ingredients as some of our favorite dishes that we commonly ordered from restaurants. For example, if we liked ordering beef and broccoli from our favorite Chinese restaurant, we would stock our fridge with precut broccoli and beef.

We would then order beef and broccoli from the restaurant and stir fry in all of the extra ingredients that we purchased from the supermarket.

By adding additional ingredients to the restaurant food, we effectively made a single dish last for the entire week and it still tasted great! This method works especially well for family style foods such as Chinese, Thai, Indian etc…

With our new found tactic, we effectively limited our restaurant expenditures to only once a week.

We Found Alternative Ways Of Entertainment

Once we had our baby, limiting entertainment expenses got a lot easier because we couldn’t really leave the house. However, before we had our baby, we cut out a lot of entertainment related costs by just finding other things to do.

One of the things we discovered was that staying home and playing board games or having get togethers with friends was just as fun as going out.

The unfortunate aspect of entertainment expenses is that there’s a large variation among individuals. The only advice I have with regards to saving here is that entertainment costs are highly dependent on who you choose to hang out with.

If you hang out with people who party all of the time, you’re going to have trouble cutting costs. If you’re really serious about saving money, you need to make an active effort to hang out with the right people.

On a personal level, my wife and I try and hang out with entrepreneurial people more often because they tend to motivate us to better our lives. A largely overlooked aspect of saving and building wealth is who you choose to associate yourself with.

I hope that some of the tactics described above will work for some of you. I’ve read a ton of “How To Save Money” articles in the past, but I was never very successful at saving until I came up with my own strategies.

When it comes down to it, you just need to find your own motivations and ways to save money based on your own personality type.

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11 thoughts on “How To Build Wealth By Saving Money Without Sacrificing Your Livelihood”

  1. Do you do blogroll exchanging? If you want to exchange links let me know.

    Email me back if you’re interested.

  2. Building wealth in the times we are in is definitely a hard thing to do. Many have tried and failed and others have succeeded greatly. With the right information and proper amount of work all things can become possible.

  3. Pay yourself first on Payday. Put a little into a savings account before you start spending.

    ING Direct has an automatic transfer tool called “Transfer My Money” so you can put money from your chequing into your savings daily, weekly, biweekly, or monthly.

    Use my ING Direct Orange Key: 39080683S1 at INGDirect.ca or INGDirect.ca/fr/ and receive a referral bonus of $25 when you deposit $100 into a new account.

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