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As you probably know, if you have been reading my previous blogs, I am a mama to two gorgeous boys (4 years old and 6 months) and we are in the process of buying a house. In the last year, we managed to save enough money to buy and pay for a number of expensive things, such as:
- All the essentials for a new baby
- Pay consultant fees during pregnancy,
- Pay off my college loan, and
- save for a house deposit and all of the associated fees with purchase of property in Ireland.
We have also maintained quite a relaxed lifestyle and had a holiday and are booking two more this year.
It has been a pretty long road to optimise our savings as there were quite a lot of expenditures along the way (car loans, college loans, creche fees, etc.). However, we managed to do it and I am going to share how you can do too.
So how did we do it?
We used five easy steps:
The first step is to ask yourself a question, what is it that I am saving for? For us, it was holidays around the world and purchase of our house. I found that once there was something to look forward to, we were more focused on saving as much as we could.
If you are struggling to save with just goal in mind then you need some motivation.
For example, if you are trying to save for holidays, make a preliminary booking of your accommodation for your holiday destination. In Ireland, we use Booking.com website, which sometimes does not require any card details or deposits. Once you have this booked, you will have a rough idea of how much you need to save to cover basic costs of your visit. Also, I would suggest looking at the flights and purchasing them if you have the money (that means that you are definitely going and need to save, save, save!) or just noting down approximate cost of flights for your ‘money-to-save’ fund.
Once you have a value in mind of what you need to save it will be easier to reach this goal.
Avoid buying things you want, but do not need.
How do I stop myself impulse buying, you might ask? Well, say we are out to buy something, such as a particular item of clothing for kids. If I see something that just calls out to me I ask myself a question. Do I just want it, or do I really need it? Also, if I wasn’t in the shops today, would I buy it now, or a month later?
If the answer is yes and yes, and you absolutely need it then, by all means, buy it. However, if one of this answers is no, then you most probably don’t need it. If you are undecided, then what I like to do is to take a picture of the item with my phone and in a weeks time see if I really need it, most likely you will forget all about it and will save money.
Unsubscribe from the E-mail lists for your favourite stores. The E-mails promote impulse buying. Also, if you love watching YouTube haul videos, I would suggest: Just STOP.
Next step will involve some calculation and analysis of your personal finances.
- Look at your direct debits of money that is coming out of your account monthly and see if you can stop paying for something there that you are paying but not using. For example, for years I would pay for a gym membership, however, I would only use it once or twice a year. That was a complete waste of money. If I really want to go to the gym, they offer day memberships so you will save a lot of money right there.
- Calculate, what are your standing charges every month. This should include things like rent, bills, insurances, grocery and other (going out to cinema, bringing kids to soft play, etc.). It helps to have a separate joint account with your partner that you can contribute to equally. And yes, I hear a question, what if one of us earns much more than the other? Well, it is up to you, but what we found was that at the end of the day, all of the money is ours. So even if one of us has more money left over, at the end of the day all of the savings are combined and it does not matter who contributed most.
- Add a contingency money for any emergencies, such as tire puncture, presents, etc.
- Add personal spending money or family money. That was a major mistake that I made when starting to save. I didn’t budget for any personal spending, thinking I could live without spending anything, but expenditures do appear. For example, everyone in the office is going out for coffee, you need money for petrol or public transport, or you need to pay for your kid’s swimming lessons. If you don’t plan for this extra spending you will end up spending more.
- Pay off your credit card as soon as possible and STOP USING IT!!! Continuously having to pay off your credit card, means that you are living beyond your means and personally, makes me depresses seeing the money that I just received in my salary disappear for payment of debt.
- Finally, calculate how much you can actually save. It probably will not look as much as you had hoped, but you are being realistic and in time you can work out exactly how much you are spending and adjust savings accordingly. Open savings account(s) with direct debit of that value transferred preferably day after your salary. If you have a credit card debt, pay it off with that money until it is clear and then organise savings account.
Do not overspend money on groceries and ‘other’ spending!
This was perhaps the hardest step for us to adjust to, but I think we have finally come up with a system. I will try in as much detail here as I can, but it might be a bit long, but as I think this is one of the most crucial steps I decided to describe it as much as I can, so please bear with me.
First of all GROCERY MONEY:
In Ireland, we found that we need approximately 100 euro per person in the family for groceries (so 400 euro in total for 2 adults and 2 kids). When I say groceries, I mean all of the consumables, such as food, chemicals for cleaning, nappies, etc. Initially, what I was doing was allocating that money and just having it in the joint account for us to spend. However, what we ended up doing was overspending, as we had no knowledge of what the other one was spending and by the end of the month “wondered where did the money go?”.
For OTHER SPENDING, we allocate 120 euro per month (30 euro per person).
So now, we have a different system. First of all, we do not leave this money in our account, we take it out and put it in an envelope in our ‘shopping purse’. Now, I did not feel comfortable placing all of the money in an envelope, so we just keep weekly amount there, and the rest goes to safe until next week.
So we have 400 euro for groceries and 120 euro for other expenditures, which means that if there are 4 weeks in a month we have 100 euro for groceries per week and 30 euro per week for ‘other’ spending.
Every month on my salary day, on our groceries and ‘other’ spending envelope I draw out a matrix like the one below:
We do ONE weekly shop, every Saturday or Sunday morning and try to stay below 100 euro limit. So let’s say this week I spent 80 euro for my groceries, on the envelope I subtract that amount from 100 euro, leaving me with 20 euro for any basics that can run out such as bread and milk:
You might ask me, but what if you overspend and pay more than 100 euro a month? So for example, say I went out and instead of 20 euro, spent 27 euro. Well, the extra 7 euro comes out from ‘other’ spending allocated for that week:
Basically, we only have 130 euro per week on groceries and other spending combined and cannot ‘borrow’ from the next week thinking ‘Ah sure I won’t need as much next week…’ You WILL.
Instead, ask yourself a question, ‘Can I wait a day or two for my next week’s grocery money to buy this?’. This most typically occurs on the last day of the week, and so it is easy to resist and go shopping next day instead.
You might also ask ‘why envelopes’? Well after each purchase, we put the receipt for that purchase in that envelope and at the end of the month, seal it and store it away. So by the end of the year, we have 12 envelopes with all of the receipts, which is handy if you ever need to return any items as you never lose another receipt and thus save money.
So that is it. These are the steps that we followed and are still following and it is working out very nicely for us.
What about yourself? Are there any tips you can suggest?
Hope you are all having a lovely day.