Tips on How to Save Money | How to Stop Dipping into Your Savings

Attorney Paul Denni

Attorney Paul Denni

Getting new tips on how to save money can be like getting new tips on how to lose weight.

You can try a new fad diet or exercise routine hoping that this will earn you the quick gains the marketers promised you, and you may see some brief improvement initially, but unless you form new eating and exercise habits, you are going to default into your old habits and will ultimately fail to make progress toward your health goals.

The same is true of your savings.

Even if you learn new tips on how to save money, it’s not really going to help you all that much if you haven’t created a framework for your finances that protects the savings you’ve put aside.

tips on how to save money

I found this to be true in my own life. I used to be pretty good at putting a little piece of everything I earned into a savings account, but time and again I’d have to transfer that money back into my checking account to pay bills, rendering my savings habit pointless.

Not only did I have no savings, I was massively in debt to the tune of around $200K, behind on taxes, and was struggling to earn a consistent income.

I finally got fed up with this hamster wheel of frustration and set my mind to figure out how to stop playing grab ass with savings. I was tired of being beaten down by bills and debts, and tired of chasing a consistent income.

Turns out, my “savings” problem was actually a financial framework problem.

While I don’t have the A-Z formula to make you rich overnight (hint: there isn’t one), I can tell you about the financial framework I embraced and use daily to save money consistently so my net worth continues to grow over time.

It’s actually a very simple framework, one that anyone can implement.

The problem with money is that people make it too complex. Charts, graphs, gurus, tracking, software, spreadsheets – all of this stuff can be useful to grow your savings, but learning and implementing the basics can and should be done first, and once you have the basic habits established, you can augment and tweak the framework all you like.

But I still think the more you keep it simple, the more success you will find in your finances.

The other problem is that people are always looking to get rich quick. We look at the lottery winners and professional athletes and fantasize about what could be. But the only true way to build lasting wealth (including for the lucky outliers) is by working this framework day after day.

Are you ready for my simple financial framework?

Here it is:

  1. Practice the Growth Mindset
  2. Create your Money System
  3. Create and practice Daily Wealth Habits

It may all seem too simple at first, but below, I’m going to flesh out these ideas to help you understand, internalize, and implement this framework.

The beauty of this financial framework is in its simplicity. Whenever you start getting lost in the weeds or become a deer in headlights paralyzed by indecision, you can always return to this simple framework to make sure you are still progressing toward building your savings and amassing wealth.

There is nothing worse than the feeling you are taking one step forward and two steps back with your money. Believe me, I know this feeling well.

Think of the framework as a way to create an impenetrable vault around your wealth, so you can continue to add to it with peace and confidence, and so you can count on it to bring you freedom now, and long into the future.

So here we go.

1. Practice the Growth Mindset

Many who have come before you, myself included, have had zero savings, low income, piles of debt, and horrible credit.

Granted there are certain factors outside of your control that may have contributed to financial upheaval – things like an illness or an accident that resulted in substantial medical bills.

But in most cases, our own behaviors, caused by our attitudes and beliefs about money, are primarily responsible for our debt, low income, and lack of savings.

You may not think of mindset as a tip on how to save money. But if you want to begin a new foundation, we have to take ownership of our situation and realize our prior thinking and behavior is what got us into our current situation, and the only way out of it is to adopt a new way of thinking that will influence us to make different decisions and take different types of actions.

Part of changing our thinking and embracing a new mindset means letting go of the past.

You aren’t going to be able to have a healthy and exciting relationship with a new person if you’re still obsessing about your ex.

Likewise, your relationship with money won’t change unless and until you let go of the attitudes and beliefs you held about money in the past (e.g. I will never have enough money, I’m not good with money, Money is too overwhelming to give it any attention, etc.).

So it doesn’t matter if you used to suck at saving money.

The growth mindset – which was taught to me by psychologist Carol Dweck – means we no longer identify as a person who is “bad with money.” The growth mindset realizes that “bad with money” is not a persona, but rather, a series of behaviors and decisions we made that had a negative impact on our finances.

We can just as easily become “good with money,” by changing our framework for managing money and changing our money habits.

Carol Dweck explains that when we identify ourselves with certain traits (e.g. not smart, not funny, not good with money, etc.) we will consciously and unconsciously make decisions and take actions that become a self-fulfilling prophecy.

The fact is, most things we think we suck at or aren’t “a natural” at can be learned, or at least, we can learn to do them better. This isn’t just fluff, but backed by over 20 years of research by Dweck, and also by modern research on neuroplasticity. And this especially applies to our thoughts, attitudes, and beliefs about money.

Even if your past decisions or life experiences have left you feeling like an absolute financial disaster, you can still improve your money habits and implement a Money System that will result in your financial success.

The door is open to you, the same as it has been open to everyone else, as long as you are ready to drop the past, walk through that door, and discover a new way of life.

Your identity, story, and vision for the future are crucial in your ability to save money, get out of debt, grow your net worth, and even become a millionaire, if that’s your ultimate goal.

I say crucial, because until you forgive and forget the past (and your narratives about it), you won’t have eyes to see the ways in which you can begin – right here and right now – to behave as a true Money Master.

If you’re ready to start believing, envisioning, and behaving like one who can amass savings, eliminate debt, and acquire appreciating assets, and if you believe you can start doing that right here and right now, then you are already embracing the growth mindset that will lead you to success.

2. Create Your Money System

When you are working to grow your income, manage your expenses, and pay off debt all at the same time, it can feel like a whirlwind of problems, each related to the other.

People become stuck in this whirlwind because it feels overwhelming, hopeless, and confusing. I have experienced this exact same whirlwind and know from my own experience that it’s a horrible way to live. That’s why the framework I use first of all starts with simplicity, so you can always make progress each and every day.

As discussed above, the framework begins with your growth mindset. The reason the growth mindset is so important is because it will help you stick with building your Money System in a way that works for you, and that surpasses just basic tips on how to save money. It’s a process that takes time and patience, and practicing the growth mindset will carry you through.

So let’s dive in.

The Money System I use is ridiculously simple, and has two main components: income and management.

At its most basic level, wealth is created by earning, and keeping, more than you spend. So focusing on your income, and managing that income, is the only way you will ever become wealthy. If you keep this bird’s eye view always at the forefront of your mind, the details are just that – details.

With finances, you don’t want to play to not lose, you want to play to win. You don’t want to be thinking along the lines of: I have so much debt oh my god how am I going to pay all of these bills!

Instead, your thinking should be more along the lines of: I have income, and I have to manage that income to pay my expenses and still keep some for myself to become wealthy, so let’s get to work.

People get stuck right out of the gate when tackling financial problems because they lose this simple focus. They become overwhelmed and paralyzed. This simple framework keeps you advancing in the right direction, a little every day.

And now, the details.

Income

Income is what drives your Money System.

There are three main ways to get income: find a job (employment), create a job for yourself (self-employment), or some hybrid of those two.

I advocate for self-employment, because you become responsible for your own efficiency. If I work as an employee and get paid a predetermined amount of $20 per hour, it doesn’t matter how hard I work or how quickly I work. It only matters that I do the bare minimum to keep from getting fired. If, on the other hand, I figure out how to create something and sell it for $20, now I can multiply my income by figuring out how to sell it multiple times in one hour, and potentially even while I’m sleeping.

But if you’re floundering in self-employment and struggling to get clients, its time to face the music and get a job. You can still moonlight on your side gig to augment your income, and to grow it steadily to the point of eventually replacing the income from your job. But income comes first, even before following your dreams of self-employment. You don’t have to give up the self-employment dream; you can find a way to grow it slowly on the side until it becomes something you can rely on.

So first, you need a steady income.

Management

It doesn’t matter how much income you have if you don’t manage it well.

This is where, in my personal finance journey, I got hung up the most. I found good ways of making money, but failed to watch it closely enough to keep my expenses under control so I could save for emergencies, invest, and watch my wealth grow.

Managing your finances includes the following four buckets (order of priority):

  • Taxes
  • Savings
  • Expenses
  • Debt

Taxes

If you’re a W-2 employee, your taxes will be taken out of your gross pay for you, so you don’t have to worry about paying income tax. But if you’re an independent contractor and/ or self-employed business owner, you need to aside money to pay your taxes first. Speak to your accountant to figure out what percentage needs to be set aside, but it’ll probably be somewhere between 30-40%.

Savings

Saving for taxes comes before your personal savings because if you did not save for taxes and you’re an independent contractor or self-employed, you’re going to find yourself dipping into your savings later to pay the taxes you owe.

The order of priorities in this Money System is carefully crafted to take care of first things first. The whole point of any system is to make life smoother and to take care of most of the decision-making ahead of time. When you save for taxes first, you strengthen the walls of safety around your personal savings.

So after you’ve saved for taxes, you need to save a percentage for yourself. I have my savings divided into to priorities:

Emergency Savings – This should be your first savings priority. “Emergency savings” means savings for true emergencies – like losing a job, unexpected car repairs, or unexpected medical bills. It doesn’t mean your girlfriend called you and asked if you want to go to Disneyland last minute. I recommend 3-6 months living expenses as a good emergency savings goal.

Savings for Investing – Once you have 3-6 months living expenses saved in your emergency account, you can then start investing. Over time, real estate can be a good investment, but I recommend a low-cost index fund with Vanguard. This investing strategy is touted time and again by experts who know better than to try and time the stock market. If you want your money to safely grow over time, your best hedge is a low-cost index fund with low fees (Vanguard has zero broker fees).

My tactics for saving: every time money comes into my checking account, I immediately transfer 30% into my “savings for taxes account,” and 10% into my “savings for emergencies account.”

I have a few thousand in my low cost investment account already, but am holding off on contributing any more to that account until I have met my emergency savings goal. Once I reach my 6 months living expenses goal, I will then take the 10% of gross income I save and will allocate half to my investment account and half toward paying off my debt snowball more aggressively (see below for discussion about debt).

But what about expenses?!

Expenses

The reason you put aside money for taxes first is because that’s your biggest and most important expense. Trying to screw over the government will put into big time trouble, including possibly federal prison, and in prison you can’t make money at all (or can make very little).

The reason you put aside a percentage of your savings first is because it is often easier to psychologically justify spending money on food, gas, travel, entertainment, you name it. When you build your Money System such that you save first, you are on a guaranteed track to start building your wealth. Saving first forces you to keep your expenses under control.

After you have saved for taxes and your personal savings, then you can pay your expenses – beginning with the necessaries like minimum debt payments (more on debt below), rent, car, and health insurance.

Debt

After you have saved for taxes, your personal savings, and paid your basic expenses, you need to tackle your debt. Being in debt sucks – I know this because I am still paying off my debts. Being in debt prevents you from seizing opportunity, prevents you from saving more, and prevents you from psychological and actual freedom. So paying off debt as quickly as possible is an important piece of the Money System.

I don’t listen to everything Dave Ramsey says, but I do really like his debt snowball tactic for paying off debt, which is to line up all of your debts – smallest to largest, and pay the smallest one off first. Then take the extra money you were paying every month toward the first debt, and apply it to the second one (and so on until you are debt free!).

I don’t like that Ramsey is a bit fanatical about paying off debt to the exclusion of all other goals. I think putting something aside for savings out of everything you earn is crucial for creating that security blanket you’ll need – you can’t beat the security of having 3-6 months living expenses squirreled away in your emergency savings. That is power! Nor can you beat those positive feelings of watching that savings balance grow.

So I recommend tackling your debt snowball more aggressively once you have built up your emergency savings. You can still save a little each month to your investment account if you want to take advantage of the cumulative effect of savings, even if it’s only a small amount each month. Once you have your emergency savings, it doesn’t matter whether you pay off debt more aggressively (you should always be paying your minimum debt payments as part of your necessary expenses, but contributing extra to your debt snowball will pay down your debt much faster), or you can contribute to your index fund account (or a little to each) – any of these options will add to your net worth.

Just do what is psychologically best for you, and whatever motivates you to keep implementing the Money System. Your worst enemies are paralysis and indecision.

To help you keep track of your expenses and debt snowball, you can use an Excel spreadsheet, budget management software, or a pencil and notepad. The key is to focus on the main components of the system, and the rest are details you can figure out and optimize later.

Take action first, then optimize.

Once you begin implementing your Money System, you begin building protective walls around your savings so it can grow month after month, year after year, and make you wealthy.

Then you can optimize your Money System using your Daily Wealth Habits.

3. Create and Practice Daily Wealth Habits

Your Daily Wealth Habits will augment, optimize, and improve upon the Money System.

James Clear taught me how to build my money habits. James says: We don’t rise to the level of our goals, we fall to the level of our habits.

This is a simple concept, but what makes acquiring wealth difficult is that the habits surrounding earning, saving, and spending are heavily influenced by psychology and emotions, more so than logic.

So we need to set ourselves up for success by working – every damn day – toward building the wealth habits that will implement, run, and optimize our Money System. I recommend reading James Clear to understand more about how habits are built and maintained, and then apply those concepts to your Money System.

You can apply good money habits toward every part of the Money System. Here are a few examples:

  • Income – You can increase your income by creating good work habits such as attention, focus, and spending time each day on developing your craft.
  • Taxes – You can create the habit of always transferring at least 30% of your gross income first toward an account reserved for paying taxes. If you’re a W-2 employee and your taxes are automatically deducted from your paycheck, you can research ways to reduce your tax liability in other ways
  • Savings – You can create the habit of always saving a portion of your income toward your emergency or investment account – even just 1%. Just start! You can optimize later, and gradually increase to 2, 3, or 10%. Trust the experts who advise starting small for lasting habit success.
  • Expenses – You can develop the habits of creating a simple budget, periodically reviewing your expenses, cut out the garbage that doesn’t add to your happiness, and keep only what’s necessary.
  • Debt – Just take baby steps first. Organize your debt snowball. Pay the minimum balances due on each of your debts first, then pay extra on the smallest debt in your debt snowball. You’ll begin feeling the momentum. After you’ve reached your emergency savings goal, take the percentage you were contributing to your emergency savings and allocate it to your debt snowball more aggressively (or pay half toward your debt snowball, and the other half to your index fund account). When your emergency savings is squirreled away, and your debt is paid off, you can contribute entirely to your index fund and to other low-risk investment opportunities.

Wrapping Up These Tips on How to Save Money

Remember: above all else keep a growth mindset. Create your Money System, and improve it little by little. If you can only save 1%, start there. As your income grows, try to keep your expenses low and increase your savings or debt payoff amount each month. Challenge yourself, and have fun with it! The purpose behind this financial framework is to give you a sense of control over your finances, in a way that helps you improve slowly over time.

You can be free of the financial whirlwind once and for all.

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Denni Law, Inc.