Abstract
Are you looking for ways to save money? First, you must list all your expenses and eliminate those that are not essential. When you choose cheaper options, you can meet any savings goals you create.
Introduction
Learning how to save money begins with assessing your expenses. The reason is simple: when you deduct what you spend from your monthly payments, you get your monthly savings.
Whether it is energy-efficient appliances or an optimum insurance plan, you must choose cheaper options to save money.
It would help if you also made a few simple changes in your lifestyle, such as reducing unnecessary outings, choosing public transport, avoiding debt and so on.
Follow these simple tips to learn how to save money each month.
15 Simple Tips to Save Money
1. Create a Budget
When you don’t have control over what or where you’re spending money, you can’t begin to save money. The starting point for creating savings goals is a monthly budget.
A budget gives you information on your cash flow, which is the difference between your monthly income and expenses. Divide your costs into fixed and variable components, then determine the variable costs you can reduce.
2. Reduce Your Debt
Debt eats into your savings, so you must pay off your debt to save money effectively. When you’re using a credit card for purchases, you’re spending money that isn’t yours.
Reduce your debt as much as possible and dedicate a portion of your monthly budget to pay off any remaining debt you may have.
A designated savings account can help you save money. Transfer the funds for your savings goals the day your salary gets credited into a dedicated savings account.
To avoid inflation, you can invest the same money in low-risk securities.
3. Set a Monthly No-Spend Day
Instead of changing your spending habits overnight, try doing it one step or one day at a time.
Choose one day in the month when you will save money by making a meal at home or watching content online for entertainment.
When you spend less for one day, you can gradually increase it to two days a month and eventually a week per month.
4. Identify Non-Essential Expenses
Do you ever go to the shopping mall and overspend? If you do, it’s time you list the items you need before shopping.
Do you need to buy that pair of sneakers this month, or can you invest the same funds to reach a different financial goal?
Do you need to splurge on chicken shawarma every evening, or can you cut back and invest that amount once a week?
Reconsider what your essential and non-essential expenses look like. When the time is right, you can treat yourself to the finer things in life.
When you spend less, there’s more room in your savings account to invest. Once you practice this as a habit, you will find more ways to explore frugality without compromising what satisfies you.
5. Try Envelope Budgeting, but online.
As the name suggests, envelope budgeting means putting physical cash into envelopes for monthly expenses like utility bills, rent, and more.
While doing it physically may not be your best bet to fight inflation, you should invest and build a fund for your needs.
Eventually, you’ll realise you’re earning passive income while setting money aside responsibly.
6. Try To Restrict Subscriptions
How many subscriptions to O.T.T. platforms do you get to make the most of? Are you ordering things from online e-commerce portals?
Stop subscribing if you don’t need all the subscriptions and the products you order are not essential. You can spend less this way and stay within your budget.
7. Make Your Bonus Work For You
Are you one of those lucky people who get a hefty annual bonus or have generous relatives who gift you money? If yes, transfer that annual bonus to an investment asset that allows you to meet your financial goals, like an emergency fund.
If you have any outstanding debt, use this extra money to pay it off. You spend less of your monthly income and save more.
8. Lower Your Monthly Bills
Making some minor adjustments in your lifestyle can help you spend less. Opt for energy-efficient electronics, use cold water to wash your clothes, and fix those leaking pipes to meet your savings goal.
With energy-efficient appliances, you save money on electricity bills.
You can also save on transportation costs by planning your trips to the shopping mall or other locations you frequent. Decide on a monthly grocery shopping day so your fuel costs are lower. When you have a list of essential items, your shopping bills are lower, too.
9. Set Up Standing Instructions for Transfers
If traditional envelope budgeting requires too much, then go for automated transfers. Instead of taking cash out from the bank, give your bank instructions for transferring the amount to different funds from your savings account.
Since the funds are transferred from your savings account, with a lower balance, you have no choice but to spend less.
This is a form of forced savings, and you also achieve your financial goals on time.
10. Check for Deals
Movies, sporting events, and amusement parks all have discount schemes. Check online before you buy tickets to save money. Various sites offer event tickets at a discounted price.
11. Explore The Option Of Staycations
Going on a vacation, especially to a foreign country, can burn a hole in your pocket and disrupt your savings goals.
If you don’t plan well in advance for a vacation, you end up paying a much higher price than planned – quite literally! If you want to relax, explore staycations at one-of-a-kind properties or become a tourist in your city and explore the popular spots.
12. Check Your Insurance Premiums
Whether it’s car or life insurance, you should visit online portals and get the best rate depending on your insurance needs. Choose from rates offered by different life insurance companies and find the one that suits you best.
Know your insurance coverage through free online calculators or engage a financial advisor before buying insurance to save money.
13. Avoid Offers by Email
Unplanned expenditures can happen due to tempting newsletter emails in your inbox. For example, buying a product you don’t need offline threatens your savings goal, as do online offers through email marketing.
Protect yourself by unsubscribing from such mailing lists. Not only will you have less spam in your email, but you will also save money by avoiding such offers.
14. Explore Different Hobbies
You can save money by finding cheaper options for enjoying your hobbies, like using the local library and renting hard copies of books or Kindle versions instead of buying them.
If you want to learn cooking, you don’t need any expensive classes; there are plenty of free YouTube tutorials that you can learn from.
In the next section, we discuss types of monthly expenses using examples.
The amount that you spend each month is your monthly expense. You’re likely to overspend if you don’t have a monthly budget.
Your costs can be classified into three different categories. Let’s understand these categories in detail:
1. Needs
The portion of your monthly expenses on essential items comprises your needs. In the 50/30/20 budget model, 50% of your post-tax income is spent on needs. Here are some examples of needs:
- Housing. such as rent and property tax
- Healthcare premium for insurance with additional medical expenses.
- Life insurance premium
- Transportation costs include the down payment on your car, public transport charges, and fuel bills.
- Loan repayments
- Utilities, including cell phone bills, internet charges, electricity bills, and more.
2. Wants
The expenses in your monthly budget that are not regular come under the category of wants. In the 50/30/20 model, 30% of your post-tax income is spent on wants. Here are some examples of wants:
- Interior decoration for your home
- Outings at cafes and restaurants
- Membership costs for clubs and gyms
- Travel costs like hotel charges, flight tickets, car rentals, and more
- Charges for your entertainment subscriptions
3. Luxury Items
Items that you don’t need but wish you could own come under this category. These items usually don’t appear in your monthly budget. Here are some examples of luxury items:
- Clothing sold under a well-known designer label
- Exclusive cars and watches
- Gold or platinum jewellery
In the 50/30/20 model, 20% is part of your savings goal. If you are looking for ways to save money, you must start by analysing the first category of expenses and needs.
You can save money by choosing cheaper options that fit your needs, restrict your wants, and avoid luxuries. Doing so makes you spend less on needs and wants, and your savings go up.
The following section looks at the 30-day Rule to save money.
What is the 30-Day Rule?
Are you an impulsive buyer? Do you go for an evening stroll and end up with bags of things you don’t need? Then, you need to try the 30-day Rule to save money.
The 30-day Rule does not say ‘don’t spend,’ it just says to postpone your purchase by a month. Put your money aside in a digitally appreciating asset, and then visit the store after a month to buy the product.
You spend less, and your savings goal is fulfilled since you may end up finally not buying the thing.
Here are a few ways to save money using the 30-day Rule
1. Know the Difference Between Needs and Wants:
Define your essential and non-essential expenses when you start the 30-day Rule. All your needs go into your savings plan, and your wants will come under the 30-day Rule. Every time you shop, ask yourself whether the item is a need or want.
2. Let Your Money Grow
While the unspent money earns interest in your savings account, you can decide if you need that smartphone or pair of shoes. A high-interest savings account will help you gain higher interest.
3. Start an Entertainment Fund
Spending less than one earns is challenging, so set aside a modest sum for an entertainment fund every week. When you buy inexpensive items, at least the craving for spending won’t be that high.
How Inflation Affects Your Money
High inflation eats into your savings, and your monthly expenses go up. When your savings lose value, you need to earn more to save more.
Investment strategies to hedge against inflation will differ from individual to individual since your needs and earning potential are unique.
Here are some ways in which inflation affects your money
i. Lower Purchasing Power
When inflation rises, your purchasing power falls. For example, if your monthly expense was ₦40,000 last year and the inflation rate is 7%, your monthly expense today will be ₦42,800. Money tends to lose value, and you must pay more to buy the same quantity of things.
ii. Higher Valuation of Financial Goals
Inflationary forces also cause the cost of your financial goals to go up.
If long-term inflation is, say, 6%, and the cost of retirement today is around ₦10 million, then 30 years later, you would need approximately ₦47 million to retire comfortably.
If your savings fall, you must either try for a higher-paying job or do a second job to increase your savings.
iii. Higher Prices of Goods & Services
With high inflation, your monthly expenses increase, and you need more money to pay for them.
If you take a loan, then your EMIs go up as well.
The following section shows you how to hedge inflation through suitable investments.
7 Ways to Hedge Against Inflation
Here are 7 ways to hedge your savings against inflation:
1. Move Your Money into a High-Yield Savings Account
You will need more than just keeping your money in a basic savings account to hedge against inflation. Part of your savings that you need to protect from stock market volatility, like your emergency fund, can be invested into a high-yield savings account.
2. Buy Treasury Bonds
Treasury bonds might be better than savings accounts if you are looking for a safe investment option. The government backs these bonds with a maturity period of 1 year.
Although you won’t receive regular interest, you can easily buy them through banks or brokers.
Additionally, Treasury bonds are taxable but can be easily converted into cash. Overall, Treasury bonds offer a reliable and secure investment option that can provide peace of mind to investors.
3. Invest in the Stock Market
A great strategy to hedge inflation is to invest in the stock market. Here are some viable options:
- Buy and Hold: The buy and hold strategy suggests holding on to your investment for at least 3 to 5 years. Depending on the performance of the stocks you have invested in, you could earn 100x your original investment. However, you need to be patient and avoid a panic sell-off due to market volatility in the short term.
- Value Investing: If you invest in a stock whose intrinsic value or book value is higher than the market value (market price of stock x total number of shares), you have a higher chance of making a profit. This is the basic principle of value investing. Buying such stocks when the market corrects, or falls helps you earn higher profits that hedge against inflation.
- Growth Investing: There are two types of growth investing: long-term and short-term. You can include stocks in your portfolio for the long term if you want to meet long-term financial goals like retirement. If you can earn high profits in a year or two, you can invest in short-term growth. Both these strategies are an excellent inflation hedge.
- Income Investing: Your investment decision will depend on whether you want income generation or wealth creation. Investing in a cash income-generating stock will not increase the value of your portfolio. You can earn cash income through a stock dividend or fixed interest. These investment strategies are ideal for beating high inflation.
- Dividend Growth Investing: When investing in a security that pays high dividends, you face less volatility than growth stocks. Such companies don’t pay you dividends but reinvest them in the stock. These stocks give you higher long-term returns with the benefits of compounding, which is the perfect hedge against inflation.
- Passive and Active Strategies: Passive investment strategies follow the buy-and-hold model. You have lower transaction costs since you don’t frequently buy and sell stocks in your portfolio. If you want to earn more than an average investor, you need active investment strategies. Your portfolio changes often since you are constantly booking stock profits.
- Contrarian Investing: These investment strategies are based on valuation, aiming to buy low and sell high. As a contrarian investor, you constantly look for a stock with high future growth potential, high entry barriers (to prevent competitors from entering), and transparent management.
- You buy stocks with high intrinsic value compared to market price and invest when the prices are at their lowest point during a recession or calamity.
- Indexing: Instead of investing in stocks directly, you can invest through exchange-traded funds or ETFs. These types of ETFs or mutual funds invest in companies that are part of a financial market index. Some of the top index funds you can consider are the Stanbic IBTC ETF 30 and the NSE (Nigerian Stock Exchange). These funds have passive investment strategies and low expense ratios, making them cheaper than actively managed mutual funds.
You can also apply passive and active investment strategies for other asset classes. You can choose the respective index for the specific asset class and invest in them for passive investing. If you want higher returns, choose individual mutual funds where active asset selection is made.
4. Diversify Your Portfolio
Diversifying your portfolio by investing in more than one asset class is essential. By doing this, you protect yourself when the price of a single stock falls since the other stocks or asset classes can pull up your average returns to hedge against inflation. Here are some strategies for portfolio diversification:
- Domestic stocks: If you have sufficient knowledge of stocks, you can invest directly or in domestic stocks through mutual funds. Investing through ETFs is less costly and risky since it is a passive investing strategy.
- International Stocks: Mutual funds like the Stanbic IBTC Dollar Fund let you invest in U.S. equity and fixed-income instruments. You can diversify your risk by investing in these funds and earning higher returns.
- Bonds: This investment is less volatile compared to stocks and provides the investor with regular interest income.
- Short-Term Investments: CDs (Certificate of Deposits) and money market funds are short-term investments that offer capital security. These are low-risk, low-return options.
5. Invest in Dollars
There are several investment options available that can help you diversify your portfolio and manage risks besides the conventional options such as stocks and bonds. Investing in currencies such as dollars is one such alternative investment option.
Investing in different types of assets can spread your risk and potentially earn higher returns in the long run.
One of the best investment options here is Nigeria’s best dollar-saving app, Pillow.
You can start by investing as little as ₦3000 and hedge against inflation with returns as high as 14% annually. More importantly, these investments are covered by a $250 million insurance policy.
6. Invest in Real Estate
Real estate investment is a good hedge against inflation. Investing in real estate can be done through REITs (Real Estate Investment Trusts).
There are three types of R.E.I.T.s:
- Equity REITs (which invest in commercial properties),
- Mortgage REITs (which invest in mortgages),
- Hybrid REITs (which invest in both equity and mortgage REITs)
When inflation occurs, the rent for commercial properties increases, which can act as a hedge against inflation.
7. Invest in Gold and Precious Metals
These investments are also an example of good inflation. Gold prices rise with inflation, making them the ideal hedge against inflation.
Let’s find out next the best asset class to hedge against inflation.
Conclusion
Savings are the first step to achieving your financial goals, leading to greater economic security. You can start investing in your savings plan when you learn how to save monthly money.
It would help if you began by analysing your expenses to learn how to save money. You spend on 3 categories of costs – needs, wants, and luxuries.
Follow the tips for saving money we’ve shared in this blog. Try the 30-day Rule along with the 50/30/20 model. You may fail initially, but you can spend less with practice and meet your savings goal.
Now that you know how to save money, start your journey toward financial freedom today!
F.A.Q.s
What are Examples of Monthly Expenses?
The post-tax monthly income you spend on different items comprises your monthly expenses. Your monthly payments can be classified into needs, wants, and luxuries.
Needs include the priority items that regularly feature on your monthly expense lists, like groceries, utilities, fuel costs, and insurance premiums.
Wants to include items that are not part of your regular monthly expenses. They are not essential. Examples include dining out, home renovations, and air travel charges.
What’s the 50-30-20 Budget Rule?
The 50-30-20 Budget Rule is a popular personal finance strategy that divides your after-tax income into three broad categories:
- 50% for necessities and expenses,
- 30% for discretionary spending and 20% for savings and debt repayment.
This Rule helps create a balanced budget to cover your essential expenses, enjoy some fun money, and save for your future financial goals.
Why is Saving Money so Hard?
Saving money needs consistent effort and practice. Plus, saving money is even more complicated if you still need to define your financial goals according to the SMART (Specific, Measurable, Achievable, Realistic, and Timely) method.
Is 500 Naira a Month Good to Save?
To activate your savings plan and achieve your financial goals, it’s essential to start saving. So, 500 Naira is an excellent amount to begin with.