Categories

How to save money

No "ultra frugality" tips, no guilt. Just actionable ways how to save money in the real world. Get the exact strategies and scripts to save money today.

Ramit Sethi · October 27th, 2014

Coffee and Frugality... WRONG

These are actual, real articles that someone wrote about how to save money. I swear.

Frugality blog tip: separate your two-ply toilet paper

Frugality blog tip: take shorter showers

Frugality blog tip: cut your own hair

Not here. If frugality’s what you’re after, please go back to 2 hours of carefully separating toilet paper by hand to save $1.42 a week.

If you don’t want to be that person, today I want to show you how to actually save money in the real world.

First, here’s my promise to you:

  • No crazy “ultra-frugality tips.” They don’t work, and I’ll show you why.
  • No guilt. You can save money, painlessly and stick to it.
  • No vague advice. Instead of “pay less for cable,” I’ll show you the exact scripts to use to negotiate bills.
  • Real savings. We’ll be talking in terms of saving hundreds, usually thousands of dollars. Not $1.42/week.

The biggest mistake we make when trying to save money

It’s not our fault that saving money is riddled with guilt, frustration, and confusion. We’re constantly bombarded with terrible money advice. Our parents, our friends, blog posts, magazine articles and TV pundits all preach “keep a budget!” and “cut back!”

The HUGE mistake with typical advice is that it relies on willpower.

The common denominator is all these frugality tips focus on tiny, one-time savings that have to be repeated every day, every month, every year, FOREVER to make any significant impact.

Let me show you.

The rallying cry for frugality “experts” is to cut back on your morning coffee. You’ve probably seen a chart like this:

Latte Factor frugality myth

Source

The explanation goes something like this:

If you save $2/day by making coffee at home, you’ll save $62/month which equals around $700/year. “Properly invested,” that’ll grow into $10,000 in 10 years!

WRONG.

Why doesn’t this work?

  1. We have to make this choice EVERY DAY. Regardless of factors like we love Starbucks caramel double lattes, we’re feeling stressed, or we drive by the coffee shop on the way to work, we have to use our limited willpower first thing in the morning, every day, forever. The result looks something like this:

Motivation Graph: motivation declines over time

Motivation Graph: motivation declines over time with effort.

  1. Even if we’re “successful”, we don’t invest the money we’ve saved. Congrats! You’ve skipped morning coffee every day for 365 days. You have $730 dollars, right!? Probably not. $2/day is not significant enough that you’ll “see” the savings at the end of the month. Unless you physically put aside $2 every single day. Which brings us back to point #1. And even if you do it, how do you invest it? What account do you put it in? It’s easy to see how this becomes much more complicated than putting grounds in your coffee maker.

The good news is, you can save money. Much more than $730/year and without the guilt and frustration. Here’s how.

3 steps to save money without misery

STEP 1: Automate finances to make saving money painless and spending guilt-free

One reason we don’t save money is the pain of putting money into our savings accounts each month. Just like the lattes, we may do it once or twice but if we have to make the decision EVERY paycheck, we’re setting ourselves up to fail.

That’s why automated finances work so well. By setting up a bulletproof personal finance system, you can start to dominate your finances by having your system passively do the right thing for you.

It will help you automatically manage your money, guilt-free, for years to come. Bills, payments, and savings will be automated, leaving you to focus on the things that really matter. And since the system is so flexible, you can tweak it to your specific situation.

Here’s a 12-minute video guide to how to set up your money to automatically pay bills, save, and even invest.

The video explains the exact steps needed to set your money-saving system so your money automatically “flows” to where it needs to go, and requires little maintenance each month. Check out how it works:

'Automating your money' flowchart

From my NYT bestseller, I Will Teach You To Be Rich.

Then, you know exactly what you have left to spend (guilt-free) each month. $5 latte? Sure! A round of drinks with your friends? Absolutely.

Bonus: I wrote a huge free guide to personal finance and how to manage your money that goes into even more detail on the strategies described here.

Step 2: Negotiate your bills one time, save money every month

Once you have your savings automatically set up, let’s filter more money into that account.

Instead of cutting back on the things we love, we can save money on the things we hate paying for. For example, you can negotiate your cell phone, car insurance, credit card interest, and bank fees. A one-time 5-minute call can save you every month. If you save just $25 on your cell phone bill per month (very reasonable), you’ll cover half your morning lattes — no willpower needed.

Here’s a video explaining how to negotiate five of your bills, easily.

For bonus tips on maximizing your credit card savings, here’s another free chapter of my book that covers optimizing your credit cards so you save money on repayments and interest charges..

New: join thousands of students saving real money in my FREE Save $1,000 in a Week Challenge. New class starting soon.

Step 3: Focus on the Big Wins, not minutiae

One reason we covered that skipping lattes doesn’t work to save money is that the amount of money you save is so small. Even $730 per year (remember if you do it every single day AND put the money aside), won’t make a significant improvement in your quality of life.

That’s why I encourage you to instead focus on Big Wins.

Big wins are the 5-7 actions that can significantly impact your income and your life – such as making money on the side, investing early, and negotiating a raise.

The beautiful part about Big Wins is you do the work up front — and they pay rewards for the rest of your life. For example, one $5,000 salary negotiation in your 20s can be worth over $1,000,000 over your lifetime. How many lattes is that worth?

The 7 Big Wins that can make you money for the rest of your life

 

  1. Automate your finances
  2. Start investing early
  3. Improve your credit score
  4. Land your Dream Job
  5. Negotiate a raise
  6. Make money on the side
  7. Negotiate your rent

Next time you hear the same old tired advice on saving money — keeping a budget, or cutting back on $2 lattes — ask yourself: Has that really worked for the millions of people who’ve tried it? Are they really not “trying hard enough”? Or is there perhaps a systemic problem urging people to waste their limited willpower on near-meaningless tasks with little reward? Should we instead focus on high-leverage areas that will result in massive payoffs?

Put another way — how can we focus on using Big Wins so we can have an edge in life… and get on with doing the things we truly love?

For your first Big Win, I’ve put together a 1-day salary negotiation course for you that my students have used to negotiate raises of $5,000, $10,000, or more. Get access to the 1-day course on negotiating a raise right here.

 

Join my Insider’s List FREE to find out more tactics to help you save money and live a Rich Life:

Do you know your actual earning potential?

Get started with the Earning Potential quiz. Get a custom report based on your unique strengths, and discover how to start making extra money — in as little as an hour.

Start The Quiz

Takes 3 min