Four Big (and Four Not-So-Big) Tips to Save Half Your Income
Financial independence and early retirement—just like any long-term goal— does require sacrificing certain things in the present moment in order to get you where you really want to be long term. Saving and investing money into passive streams of income is crucial for success when it comes to early retirement. How extreme you choose to be with this is completely dependent upon your individual goals and personal timeline for when you want to be financially free.
The reason this blog post is titled as ‘tips to save half your income’ rather than ‘tips to earn more’ is for a couple reasons. The first being I don’t want to give you tools to work more. I want to give you tools so you can spend more of your time doing the things in life that fill you with just that… life.
The second being when you focus on saving $1 its actually keeping you from having to earn $1.33 more. When you save more rather than earn more you don’t have to worry about giving the government 1/3 of it, so it speeds up the process of reaching your financial goals.
Having said that, here are some tips for saving additional money in order to fast track you to early financial freedom:
1. Make a budget
First and foremost, you will never know how much ‘half of your income’ is unless you are aware of what money flows into and out of your account each month. Budgeting raises your personal financial awareness on many different levels. For starters, it allows you to see honestly what your spending looks like compared to your income. Do you really need that monthly subscription to bark box? Or how much do you really spend on carryout each night because you’re too tired to cook by the time you get off work?
Being aware of your habits (spending or other) will always be the first step towards creating the habits you want to manifest. Once you realize you spend more money each month on buying matching outfits for your cats than you have in all of your savings accounts combined, you can start the process towards creating new spending habits… like maybe only buying them a new outfit on their birthday.
I’ve found apps like Mint to be extremely helpful when it comes to tracking spending to stay within budget. These apps link up to your bank accounts and let you categorize your spending so it auto populates in the categories you designate for your budget.
2. Pay off debts as soon as possible, especially the depreciating ones
Take a second to think about all the things you borrow money for: your house, your car, your student loans, and credit card just to name a few that are most common. Now look at your statements and see how much of the monthly payment for each of these bills is going towards just simply interest. The number may shock you. For the vast majority of American’s the average is over $8,000 of their income goes towards interest alone each year!
By paying off debts and choosing not to buy things on credit you can save months worth of income just by not having to pay interest. This is one of the reasons for first identifying your ‘why’ so you can plan ahead and work back from there. When you plan ahead you are able to save in advance for things that you would typically borrow money for. When you save in advance you can pay with cash instead of tacking on years of interest payments.
3. Rent/Airbnb your spare bedroom
Do you own a house? Do you have an extra bedroom that hardly ever gets used? You could help supplement your mortgage payment by getting a roommate or renting out that spare room on sites like Airbnb.
If you’re wary about having complete strangers sleep under the same roof as you, see if any family members have kids in college who are looking for a cheap place to stay. The average cost of dorms is between $8,000 and $13,000 annually. So inviting a college student you know to rent from you may be a financial gain for both of you.
Renting out your entire house during peak times in your area on sites like VRBO or Airbnb is another potential option. I live in Louisville, Kentucky which is home to the Kentucky Derby. People in my area can make upwards of $5,000 off renting their house on these sites for the week of the Derby. See what local events bring in visitors to your area and maybe plan your next family vacation around that event so your house is available for tourists coming into town.
I do want to emphasize that this tips applies mainly only to people whoown the place they live in. If you are a renter then it is important to be diligent and check to see if subleasing is allowed by your landlord (it usually will specify if is isn’t in your leasing agreement).
4. Buy practical cars
Imagine your monthly expenses as a pie chart. Excluding taxes, since there is little we can do to change that number legally, what are your two biggest expenses? For the majority of American’s it’s their housing costs and their transportation costs. So, logically the best and most effective way to cut your expenses in half is to start with the two biggest pieces of the pie. We just discussed a way you can make some money on your housing so now lets figure out a way to save money on your transportation.
Majority of Americans use their car as their primary means of transportation. Usually there are multiple ways this can be an expense to you, the obvious three being: car insurance, fueling costs, and car payments.
By choosing a practical car versus that new shiny Mercedes or Ford F-250 with a V-8 engine, you will save in all three categories.
By budgeting (tip 1) and planning ahead you hopefully don’t have to take out a loan for your next car and pay a bunch of unnecessary interest (tip 2). A cheaper car that doesn’t have a loan on it will reduce insurance rates dramatically. Couple that with getting a cheaper car with good gas mileage then you can be saving hundreds of dollars each month.
The average American spends somewhere between $317 to $515 a month on their car loan depending on if it is used or new. For the sake of example we’ll average this out to $416/mo. The average American puts about 1,000 miles on their car each month. If gas is $2.50/gallon, the difference between a car that gets 18 miles to the gallon vs. a car that gets 30 miles to the gallon is a $55.56 difference in gas costs a month. Just between these two factors that’s $5,658.72 a year difference. Then tack on the cost of increased insurance rates on newer, more expensive vehicles including potential gap insurance required if you owe more on the car than it is worth.
I strongly encourage you to thoroughly research any used car you may purchase so you know it is a model that has a good mechanical track record. If you buy a $2,000 car but are putting thousands into it every year to keep it running then that defeats the initial purpose.
I drive a 14-year old Honda Accord and would encourage anyone looking into getting a used car to research Honda’s. It gets around 30 miles to the gallon and I haven’t had any issues other than regular wear and tear for the 6 years I’ve had the car. Plus, I still have the luxury of a sunroof and heated leather seats.
Sometimes by starting with the smaller steps we can build the self-confidence to work on the bigger steps. If the first few tips to save half of your income seem like too big of a sacrifice at the moment… that’s okay. Sometimes by starting with something less overwhelming we build up the confidence to tackle the bigger steps in the process. Or you may find some other ‘big steps’ that work better with your lifestyle. Here are some suggestions for some less significant but still helpful ways to save more money.
5. Use Cash Back Rewards Programs
Credit cards are notorious for cash back incentives. If you are good at keeping your budget even while using a credit card – let me repeat – if you are good at keeping your budget even while using a credit card,then and only then, I think this is a great way to get some money back on things you would purchase anyway.
I would say I average $50 a month on using cash back reward programs like Ebates which gives you cash back on hundreds of stores (mostly online) sometimes up to 50% cash back.
I also use my Discover card for cash back as well. They offer 1% cash back on all purchases but on top of that 5% cash back for different things quarterly. Like 5% back on Amazon purchases around Christmas time, gas stations, grocery stores and restaurant purchases and more are all part of their quarterly 5% cash back rewards program.
The best part is that you can double up! You best believe when I go through the Ebates app I still pay with my Discover card to double up on the cash back. For example, we went on a trip to Chicago earlier this year and I found a hotel on Groupon (another discount site) for a good price. So I opened up my Ebates app and received 18% cash back on our $277.65 hotel room purchase (our total for 3 nights! can you believe it?!) and then continued to pay for the Groupon with my Discover card for an additional cash back bonus.
So with just a few clicks I saved close to $45 on something I would have purchased anyway!
6. Pack lunches for work
I’m sure you’ve heard this one before but incase it hasn’t stuck in the past, the effects of saving $10/day for 5 days out of the week over the course of the year can really add up – $2,600 to be exact.
So if you are going out for lunch daily, even packing your lunch every other day can still land you in the four figures worth of savings by the end of the year. Not to mention packing will help you with your health related goals as well.
7. Nix cable
Zach and I recently cancelled our cable and Wi-Fi which was costing us close to $190/mo. Then we went with a cheaper Wi-Fi provider (who also gave us 9x faster internet) and now our monthly bill is $49 — saving us $141/mo. And the best part is that we still get to watch all the shows we love.
With sites like Netflix, Hulu, Sling, Youtube TV, Amazon Prime, and many more you can get the shows you most want for a fraction of the cost. Some of these sites even have sports packages included.
Be aware of the price you’re being charged for your cable and Wi-Fi and shop around once a year. Usually your cable provider will up your bill at the end of your first 12 months with them anyway. Spend an hour or two calling around like we did and those two hours I spend on the phone ended up saving us $1,692 for this year. So now I saved $840 per hour of my time spent on switching providers… not to shabby.
8. Shop around for new insurance rates
Similarly with the cable companies, insurance providers often times bump up your rates a little each year. Has your monthly mortgage payment gone up recently? If your taxes haven’t increased then it’s likely your homeowners insurance that has.
We switched our homeowners insurance this past year and saved about $200 for the entire year on the homeowners insurance itself—however when we bundled our car insurance our rates dropped hundreds of dollars for the year. We went from spending around $2,000 a year between the two of us for separate car insurance to $1,200 per year when we bundled our car insurance with our homeowners insurance for a total savings of nearly $1,000/year between the two insurances.
In short, it is always valuable to start with a budget and the awareness of where your money goes each month. That way you are better equipped to create daily habits that lead you closer to your financial independence goals. These are just a few tips that can jumpstart you towards making financial decisions that reflect your goals in the long term. Comment below what your thoughts are on these tips and if you have any other ones you’ve had success with!