July 25, 2021

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The Best Way to Save Money

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There’s really only one way to save money. You have to spend less than you earn. 

It’s a simple formula. What comes in must be less than what goes out. 

For most people that means cutting back on lattes and going out less, which is why people hate budgeting and struggle to stick with it. 

But, there are actually much better strategies for spending less than you earn. 

At IWT, we believe the best way to save money is by utilizing the CEO approach.

The CEO Approach: The Best Way to Save Money

  • C- Cut Costs
    • Set Savings Goals
    • Track Your Spending to See Where Your Money is Going
    • The Envelope Method
    • Automate Your Savings
    • Pay Down Debt
    • Set Money Rules for Yourself
  • E- Earn More 
    • Ask for a Raise
    • Get a Higher Paying Job
    • Start a Business/Start Freelancing
    • Take Advantage of Your Employer’s 401k Match
  • O- Optimize Spending 
    • Negotiate Your Bills Down
    • The A La Carte Method

Traditional advice about saving money only focuses on restricting. By looking at other ways to improve your finances, such as earning more and optimizing your spending, you open up a plethora of new avenues for saving more. 

That’s what makes the CEO approach the best way to save money. We’ll show you how to get started.  

Money-Saving Strategy #1: Cut Costs

Step one in trying to save money is, you guessed it…cutting costs. 

Most of us know what it means to cut costs. But cutting costs doesn’t have to mean giving up everything you love. The best way to save money by cutting costs is to only focus on things you don’t really care about or don’t use. This way, the change is more likely to be permanent. 

So how do you get started? The good news is that there are plenty of tricks and tactics you can use to cut down costs in a way that isn’t too painful. Here are some simple ways how to save money every month.

Set Savings Goals

Before we head into how to cut costs, there’s one important thing to take care of first. Don’t skip this part!

Know exactly what you’re saving for. 

One of the best ways to save money is to get some focus. If you’re going to make significant lifestyle changes to cut costs down, you need a very clear idea of why you’re doing it and what your end goal will look like. 

So spend some time thinking about your savings goals. Are you saving for a cushy retirement? Are you planning a big vacation? Perhaps it’s a down payment for a house or the wedding of your dreams. Whatever it is, make sure it’s something you’re excited about. That’s key to motivating you. 

Close your eyes for a minute, imagine yourself at the end when you’ve saved enough and you can finally enjoy whatever you’re saving for. Start building your savings plan with that in mind at all times. 

Track Your Spending to See Where Your Money is Going

Now that you’ve got a clear idea in your mind of where you want to go, it’s time to dig deep into the numbers.

Step one in any cost-cutting exercise is to find out where those costs are. What are you spending each month and on what? Go through your bank statements for the past couple of months and note down everything you’re spending money on. Put them into categories such as living costs, groceries, eating out, fun stuff, and so on. 

This exercise almost always surprises people. I’m spending how much a year on croissants on the way to work?!

When over-spenders do this exercise, a layer of guilt tends to settle in. But hold on. Just because you spend a lot on something that isn’t key to your survival doesn’t make you a bad person or crazy with money. It’s your money after all.

Instead, think about it like this. If there’s something you’re spending regularly on that you’re surprised or confused about because you don’t even enjoy it, that’s the stuff to cut. 

This exercise isn’t about taking away your morning coffee if that coffee brings you joy each morning. It’s about recognizing where you can cut back on the things that don’t matter to you. If you’re buying an overpriced bottle of water at the train station on the way to work every morning, it probably isn’t bringing you a whole lot of joy. That’s something you can easily cut back on and switch out with a reusable bottle.

Use the Envelope System (cash or digital)

The envelope method works by putting cash for all your monthly expenses (e.g., gas, going out, shopping) into dedicated envelopes.

For example, you might have an envelope for “restaurants.” So every time you go out to eat you’ll take money from it to spend. Once you’ve used all the money in the envelope, you’re finished for the month!

This method is flexible enough to let you dip into other envelopes if there’s an emergency. However, there’ll be less money to spend for the month on that category of expenses.

You don’t need to use physical envelopes either. One of my friends who started tracking her spending a while back had a great system: She set up a separate bank account with a debit card. Most bank accounts let you set up separate savings accounts or pots to separate your money. 

Whatever system you decide to use, you just need to make sure to decide how much you’re willing to spend in each category (and that’s all up to you).

If you think this system will help you be more conscious about your spending, you can read more about it in this post on how to set up your envelope system.

Automate Your Savings

One reason we don’t regularly save money is due to the pain of putting money into our savings accounts each month.

It’s the reason why cutting out lattes or skipping lunch is a terrible way to save more money.

That’s why automated finances work so well. You can start to dominate your finances by having your system passively do the right thing for you. Instead of thinking about saving every day — set it and forget it.

To do this, you need just one hour today to follow these three super-simple steps:

  • Step 1: Set up your bills so they’re sent to you on the 1st of the month for simplicity 
  • Step 2: Set up your contributions to your 401k so you’re saving before you even get your paycheck
  • Step 3: Automate your checking account so it pays into your Roth IRA, savings accounts, credit card payments, and any miscellaneous bills. 

For a more detailed explanation of each step, check out my 12-minute video on how to automate your finances here.

Pay Down Debt 

If you have an outstanding credit card, student loan, or car finance debt, you probably can’t bear to look at the amount you’re paying for the interest rates alone. It can feel like you’re making zero progress when most of your repayments are paying off the interest, not the debt amount. 

The solution? Pay more. 

That’s probably not what you wanted to hear, right? You may be wondering, “How can I possibly save more by spending more?” 

The simple truth is the faster you pay off your debt, the less interest you get charged in total. 

Let’s say you have a $10,000 student loan outstanding, at a 6.8% interest rate and a 10-year repayment period. Your standard monthly payments should be around $115 a month. But if you pay extra each month, you can save a whole lot.

[insert table from: https://www.iwillteachyoutoberich.com/blog/how-to-save-money/#6 ]

Making just $100 extra payments each month could save a huge amount of interest. It could even cut it almost in half! If you can’t pay an extra $100, $200 each month, even $20 a month can make a HUGE difference. See for yourself by calculating your savings using this calculator.

Set Money Rules for Yourself

We all work in different ways when it comes to money. There’s rarely any one-size-fits-all approach to spending, saving, cutting expenses down. So this is where setting money rules for yourself comes in. 

If you know you have a certain bad money habit, set a rule for yourself to help you avoid it. For example, if you’re an online shopping addict or an impulsive spender, a simple money rule could be to always wait 24 hours before making the purchase if it’s over a certain amount. 

Maybe you also put away the same amount you spend into a separate savings account — that way you’re down double the money. So the next time you want to buy something, you’ll think twice about it. 

Setting rules for yourself is the best way to curb your own bad habits and also reward your good ones. You don’t have to take your money rules from Pinterest, create your own. You’re much more likely to stick to them that way.

Money-Saving Strategy #2: Earn More Money

Cutting your expenses is a great start, but remember, there’s a limit to how much you can cut, but there’s no limit to how much you can earn.

Before you roll your eyes and skip this step, it is ALWAYS possible to earn more. Even if there’s a recession, even if you’re broke, or busy, or don’t know where to start. 

The good news is that there are several ways to start earning more. You can ask for a raise at your current job, find a higher-paying job, or start a business or pick up freelance work.

Negotiate a Raise

Many people will just take their salary, grumble quietly about it and nothing changes. But did you know that one of the simplest ways to get more money is to…just ask for it?

With just a five-minute conversation you can make thousands more and, what’s better, the gains add up year after year.

This is one of the best ways to make money through a single conversation. It’s essentially quick money that — unlike taking surveys or selling your body to medical studies — gives you a LOT of money over many years.

Check out this chart demonstrating the effects of ONE $5,000 raise:

[insert chart]

For some actionable tips for negotiating your salary, check out this comprehensive post on how to negotiate your salary. It’s got a ton of information, and the steps are easy to follow. If you’re ready to start getting paid what you deserve, go check it out.

Of course, it isn’t always that simple. Some bosses and industries have set salaries with minimal wiggle room. In that case, your next move is to…

Land a Higher Paying Job

If your boss isn’t interested in paying more money, the natural next step is to look elsewhere. Staying at a company for 10, 20 years is a thing of the past for many people now. Sadly, loyalty and longevity at a company aren’t rewarded like they used to be. 

So the next solution is to land a higher-paying job. But how?

Should you change jobs? Change industries? How do you know whether to stay put or to take a risky move that may result in more money? 

Some jobs just don’t provide the opportunity to earn more or move up the ladder. If you want to start making more money, you may have to find a better job or even a different career.

If you find yourself in this situation, we have a ton of great resources on finding a better job on YouTube.

(We also have an entire course dedicated to Finding Your Dream Job. You can learn more about Dream Job here.

Start a Business or Start Freelancing

Finding a new job or changing careers takes time. But in the next few days, you can set up your first side hustle. Once you get your first paying client, it’ll be easier to get more clients and make more money.

First thing: Many websites will tell you to troll for freelance gigs on places like Fiverr or Mechanical Turk. These places work if you want to compete with people all over the world in a race to do the most work for less. No thanks.

Instead, look at what you’ve already got. 95% of jobs can translate into some sort of side gig. Ask yourself:

  • What do I enjoy?
  • What do I do with my free time?
  • What do people ask me to do because I’m so good at it?

Start off by assessing the skills you use every day at home or at work. Remember, people pay for solutions, not your skills. How can you take your skills and turn them into a solution for someone else’s problem? 

Here’s a very simple example:

Skill: You’re good at math

Problem you can solve: With schools shut down in most states, many parents are struggling to help their kids with distance learning, and would happily pay for tutoring

Your New Side Hustle: Tutoring kids in math over Facetime or Zoom

Now imagine if by tutoring for a few hours a week, you suddenly had an extra $500 a month. 

That money can go straight to savings without reducing any of your spending. And this is just one small-scale example, it can work for virtually any skill.  That’s why earning more is one of the best ways to save money. 

If you want to turn your skill into extra cash, check out this post with everything you need to know about starting a side gig

Take Advantage of Your Employer’s 401k Match

Want free money? Who doesn’t?

Saving money isn’t just about the here and now, money-savvy people are always looking ahead. If your employer has a 401k plan, make sure you’re taking full advantage of that free cash. 

A 401k allows you to dedicate a percentage of your pre-tax salary to your retirement accounts. That also means you don’t pay tax on that income because it goes before ever reaching your checking account. If your employer matches your contributions, it’s a no-brainer way to boost your retirement savings. Future you will thank you for taking such a simple step.

Money-Saving Strategy #3: Optimize Your Spending

The secret to saving money is not just about cutting costs and going without. Nor is it to just boost your income. Tie these two things together and you have the perfect match. 

Spending is not a dirty word. We’re not here to tell you to throw away the lattes, if the lattes are something you love. The philosophy here is to stop spending on what you don’t love, the stuff you feel obligated to buy, or when buying it is just a habit. You can do without those purchases in your life, and instead, put that money to good use elsewhere. 

When it comes to managing your money and evaluating your expenses, a great habit to get into is to spend an hour or so looking through your bank statements. Check what you have spent your hard-earned cash on this month and ask yourself honestly, did you need to buy that? Did you love that purchase? 

If not, then you know what to do. The key here is to become more conscious of your spending. That’s the biggest hurdle you’ll come across when you want to save money. 

Negotiate Your Bills Down

Another way to optimize your spending is to negotiate your bills. A lot of people think bills are fixed expenses, but the truth is everything is up for negotiation. 

It’s a little-known fact that you can negotiate many of your bills with a one-time phone call. In fact, you can save HUNDREDS a month on bills for your:

  • Car insurance
  • Cell phone plan
  • Gym membership (less likely but still possible)
  • Cable TV
  • Credit cards

It’s simple too. There are only three things you need to do to negotiate with these companies on fees and rates:

  1. Call them up.
  2. Tell them, “I’m a great customer, and I’d hate to have to leave because of a simple money issue.”
  3. Ask, “What can you do for me to lower my rates?”

Of course, you’re going to want to adjust this formula for whatever company you’re calling. Check out our video on negotiating your bills for more on this topic.

Trade Subscriptions for the A La Carte Method

The A La Carte Method helps you save money on services for which you have a subscription, like:

  • Netflix
  • Gym memberships
  • Spotify
  • Amazon Prime
  • Magazines

There’s a good chance you’re WAY overpaying for these things. In fact, a conservative estimate shows that we spend over $1,800/year on subscriptions alone. 

The convenience is undeniable — subscriptions are a fantastic way to automate our lives. 

But when was the last time you scrutinized your monthly subscriptions and canceled one? 

Probably never. Yet compare this to any time you went out shopping, saw something you liked, but didn’t buy it. 

Read that again. It’s the key to cutting your spending on subscriptions. The basic idea of this system is to cancel all your discretionary subscriptions — magazines, Spotify, Netflix — and buy what you need a la carte.

  • Instead of paying a big monthly fee to companies like Netflix, buy or rent only the shows or movies you want to watch on Amazon or iTunes. Most episodes of T.V. shows are only $1.99. 
  • Buy a day pass for the gym each time you go (around $5 – $10).
  • Buy songs you want from Amazon or iTunes for $0.99 each.

This FORCES you to be conscious of your spending. By utilizing the same principles that make automating your finances great, you will have to actively think about each purchase you make when it comes to buying a song or TV show. 

If, after a while, you find yourself spending enough money on these items to justify the subscription, by all means, pick it up again. If not, then you’ve saved yourself some major cash.

Saving money made easy

Saving money doesn’t have to be hard or as painful as it sounds. Simple tweaks to your current spending behavior are often all that’s needed, or at least it’s a great start. Look at these readers who used these strategies to save more money:

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By using all the tactics outlined in this post, this could be you in just a few hours. 

Remember, the best way to save money is by cutting costs on things you don’t need, earning more by improving your salary or starting a side hustle, and optimizing your spending through negotiation. 

It sounds like a lot, but it’s really just three steps to save more money without giving up everything you love. 

If you use this strategy and it works for you, feel free to send your story to @ramit on Instagram. We love hearing from you.

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