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How To Spend Less Money

Learning how to save cash doesn’t have to be painful. Here are 7 no-nonsense ways to learn how you can spend less money.

Ramit Sethi

Want to know how to save cash quickly?

There are actually 7 systems you can use to start spending less money today.

Using the systems I’m about to outline can save you hundreds of dollars a month, make you more conscious of your spending, AND make you 1000x hotter to the opposite sex.

But first, the mental model I use to save money…

How to save cash quickly

In classic IWT-style, we’re going to cut through the BS with these cash saving systems. That means no lectures on “keeping a monthly budget” or how you need to “stop buying lunch and lattes every day.” Instead, we’re going to give you actionable systems that you can use that will get you results.

I want you to be able to enjoy the things you love and not feel guilty (while saving hundreds of dollars per year).

Here are the systems to get started today.

Cash saving tip #1: Set a savings goal

Setting a goal for how much you want to save will help keep you focused, increase your chances of accomplishing it, and help you earn money towards the big purchases in life.

My favorite goal setting tactic: SMART Objectives.

SMART stands for specific, measurable, attainable, relevant, and time-oriented, and a good goal will contain elements of all those things.

They are the perfect alternative to all of the vague, aimless goals that we typically set like “I want to buy a car one day” or “I want to be rich.”

Check out these examples of how normal goals compare to SMART Objectives:

BAD GOAL: I want to retire rich.

SMART OBJECTIVE: I will invest X% of my paycheck into a low-cost, diversified index fund until I’m 60 years old.

BAD GOAL: I want a house.

SMART OBJECTIVE: I will put $XXX dollars into a sub-savings account each month until I have enough for a down payment on a house.

BAD GOAL: I want to travel.

SMART OBJECTIVE: I will read Ramit’s article on “How to travel cheaply”, pick a destination, price it out, and learn how I can travel on a budget this summer.

When you get incredibly specific about what you want and know the measure by which to achieve it, you’ll be able to accomplish your goals. It also helps psychologically as now you’re working towards something concrete.

When you put $100 away in your savings account, you don’t think of it as just $100 gone. Instead, you’re $100 closer to a new car. It changes your motivations.

ACTION STEP: Set a savings goal

Ask yourself some questions to help craft a savings goal:

  • Is there something you’re saving for?
  • When do you want it by?
  • How much can you save each month?
  • How will you know you’re on the right track?

Saving with a goal in mind puts all your decisions in focus.

Later, we’ll show you the exact steps on how to automate your finances so achieving your savings goals will be painless and very easy.

For more information on how to craft the perfect SMART Objective for your savings goals, be sure to check out my article on the topic.

Ready to ditch debt, save money, and build real wealth? Download my FREE Ultimate Guide to Personal Finance.

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Cash saving tip #2: Leverage sub-savings accounts

Not many people realize this but you might be able to create sub-savings accounts along with your normal savings accounts.

You can use these sub-accounts in order to:

  1. Put money away towards your savings goals
  2. Save cash when you automate your finances

When I first discovered sub-savings accounts, I created one and named it “Down Payment” for a down payment on a house. I was regularly transferring money into it based on my savings goals using my automated finances.

As the months passed, the amount in that account grew bigger and bigger, and I felt really proud of my accomplishment.

During this time, one of my friends was just blindly putting away money in an account he had mentally earmarked for vague goals.

Though we might have had the same amount saved away, the difference between us psychologically was staggering. Where he felt despair about trying to save money, I was motivated.

For me, I wasn’t working towards $20,000 for a down payment. I was working on saving $333 a month over five years — a perfectly achievable goal, especially after I tracked my progress.

Eventually, my friend did open up his own sub-savings account. He told me that doing so changed his entire perspective on saving money for the better.

Having more than one stream of income can help you through tough economic times . Learn how to start earning money on the side with my FREE Ultimate Guide to Making Money

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ACTION STEP: Set up a sub-savings account (and automate it!)

Go to your bank’s website and open up a sub-savings account. You can even name it to reflect whatever it is you’re saving up for.

Saving up for a car? Name it “New Car.”

Saving up for your wedding? Name it “Wedding Fund.”

Saving up for a solid gold yacht? Name it “Bad Decisions.”

Once you do that, be sure to automate your finances so you’re passively putting money into it each month.

Automated finances are the ultimate cure to never knowing how much you have in your checking account and how much you can spend.

When you receive your paycheck, your money is funneled to exactly where it needs to go — whether that be your utilities, rent, Roth IRA, 401k, or your savings account.

Check out my video below to learn exactly how to set it up today.

Cash saving tip #3: Utilize the envelope system

Want to know one of the best ways to be conscious of your spending? Use the envelope system.

This involves allocating cash for certain things like shopping, gas, eating out, or whatever else in envelopes. Once you’ve used all the cash in the envelope for that month, that’s it. You can’t spend anymore.

Of course, if there’s an emergency, you can dip into other envelopes — at the cost of having less money in that category.

You don’t need to use physical envelopes either. One of my friends who started tracking her spending a while back had a great system: She set up a separate bank account with a debit card.

At the beginning of each month, she transferred around $200 in it. So when she goes out, she spends that money. And when it’s gone, it’s gone. It’s a fantastic system that helps her be conscious of what she spends.

Whatever system you decide to use, you just need to make sure to decide how much you’re willing to spend in each category (and that’s all up to you).

ACTION STEP: Set up your envelope system

You can set up your envelope system in three steps.

  1. Decide how much you want to spend in each major category each month.
  2. Put money into each envelope (ex: $200 for groceries, $150 for eating out, $60 for entertainment).
  3. Spend the money — but when the envelopes are empty, that’s it for the month.

If you set up a debit account, be sure to call your bank and tell them you DON’T want them to allow you to spend more than you have in your account (this is known as overdraft protection). If you don’t do this, you might run into a ton of overdraft fees.

(By the way: If you do slip up and find yourself slapped with some fees, here’s a handy guide for getting them waived.)

Want to finally start getting paid what you’re worth? I show you exactly how in my Ultimate Guide to Getting a Raise and Boosting Your Salary

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Cash saving tip #4: Use only cash (for now)

Have you ever noticed how much easier it is to spend a lot of money when you’re using a credit card instead of cash? There’s a scientific reason behind that.

Researchers at Carnegie Mellon held a study wherein 26 participants were given $20 to spend. The subjects shopped for products while lying in an MRI scanner (comfy!).

Researchers observed that the area that processes pain actually lit up when the subjects purchased a product with cash.

Whereas purchasing with credit cards was a much more painless process.

From the study:

“Credit cards effectively anesthetize the pain of paying. You swipe the card and it doesn’t feel like you’re giving anything up to make the purchase, unlike paying cash where you have to hand over bills.”

Average performers will see this and think it’s weird or funny. But a Top Performer like you can leverage this knowledge to help save money. Of course, you don’t want to try to use cash forever — it’s just not a smart financial move. How else are you going to score some fantastic travel perks and rewards? But using cash does act as a nice “reset” to help you suss out some of your more vexing habits.

ACTION STEP: Use only cash for 15-30 days

For the next few weeks, use only cash for all of your purchases if you can help it. Of course, things like saving, investing, paying bills, and making rent will be the exception. But when it comes to everything else, just use cash.

When coupled with the envelope method, you might just find that you’ve saved up hundreds at the end of the month. Maybe you’ve been drastically underestimating how much you spend.

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Cash saving tip #5: Pay down your debt

One of the biggest wins you can ever have is getting out of debt. It’s the number one barrier to living a Rich Life and it’s the reason so many people aren’t able to save.

If you want to be able to save more cash, you’ll have to get out of debt first.

If you want to know how to get rid of your credit card debt, I have a fantastic system for it in my article on how to get out of debt fast.

And if you have debt like student loans to worry about, spending more on it to pay it down now will give you more money to spend on the things you love later.

Check out how much you can save by spending more (assuming you have $10,000 in student loan debt with a 6.8% interest rate and 10-year repayment period):

Paying Back Your Students Loans Chart

Even just $50 more a month can make a huge difference.

ACTION STEP: Get out of debt as fast as possible

If you need help, be sure to check out my resources on how to get out of debt below:

I made a video a little while back on reducing debt. Check it out below.

Having more than one stream of income can help you through tough economic times . Learn how to start earning money on the side with my FREE Ultimate Guide to Making Money

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Cash saving tip #6: Negotiate your bills

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 for the year — no willpower needed.

It’s simple, too — there are only 3 things you need to do to negotiate with these companies on fees and rates:

  1. Call them up.
  2. Tell them, “I’m a great customer, and I’d hate to have to leave because of a simple money issue.”
  3. Ask, “What can you do for me to lower my rates?

It might seem like they’ll just say no, but I promise you, you’ll be surprised at how easy it is for them to say yes when they know you’ve been a good customer and that you might potentially leave their business because your rates are too high.

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

ACTION STEP: Negotiate your bills

Use the above script to negotiate your bills. If you need more help, here’s a video explaining how to negotiate them.

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Cash saving tip #7: Earn more money

Earning more money gives you the freedom to spend more without feeling guilty about buying the things you love.

That’s why my team and I have worked hard to create a guide to help you navigate all the systems that’ll help you earn more money today: The Ultimate Guide to Making Money.

In it, I’ve included my best strategies to:

  • Create multiple income streams so you always have a consistent source of revenue.
  • Start your own business and escape the 9-to-5 for good.
  • Increase your income by thousands of dollars a year through side hustles like freelancing.

Download a FREE copy of the Ultimate Guide today by entering your name and email below — and start blowing up your net worth today.

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  1. avatar
    Naturally Frugal

    This is a good tip – do you think it applies to people who use debit cards as well? I think it probably does since it’s mentally easier to swipe a card instead of giving cash. I’ll have to try it!

  2. avatar

    Disclosure: I work for American Express. There is hard evidence that users of a credit card will spend more than cash. This is, in fact, one of the value propositions that credit card associations use to sell credit card acceptance to merchants. Ramit, you hit it on the dot. People spend more on credit cards because there is no spend limit. If you are at restaurant, the most you can spend is what is in your wallet. Your transaction size will increase, on average, 10-20% by paying with a credit card.

  3. avatar

    Hey Ramit,

    This is GREAT advice but I’ll be the first Dave Ramsey follower to take the bait this time. As I stated in a comment to one of your previous posts, most Americans will never use credit cards as responsibly as you apparently can. Thus, much like alcoholics must forever more avoid alcohol, the cure for most Americans (if they have the will) is to avoid credit (and thus credit cards) at all cost.

    I, for one, am currently destroying my credit score by paying off credit card debt and closing accounts, not necessarily in that order. *IF* I ever need to buy another house I will use the 100% down plan or seek a lender that does manual underwriting. My guess is that such lenders, while scarce in recent years, will gain in number thanks to the recent economic difficulties and will offer solvent borrowers choice rates, even exceeding the numbers you have published.

    By the way, it would be interesting to see the source of your loan rates. I doubt a person/couple with a credit score of anything less than 700 would qualify for a loan at present, unless manually underwritten of course.

    Again, excellent post. Keep up the great work.

  4. avatar

    I actually have the opposite problem: I think twice about pulling out the card (even the debit card, which might as well be cash), but if I have some cash I think “oh I have enough” and it’s gone before I know it. I’ve saved TONS of money after figuring out that I should never have ready access to more cash than I’m prepared to see walk out the door.

  5. avatar

    I’m strongly against using cash and credit cards. I almost solely use my debit card and I feel that my spending is kept under appropriate control because I compulsively check my online banking. For me, seeing the $15 I spent at the book store or the $38 on dinner in my recent transaction history helps me reconsider future purchases. It is also helpful that I must see these transactions for 1-2 weeks before they clear off of the front page of my online banking (I don’t buy much). I always keep $20 in cash stashed away in my wallet for emergencies.

    I acknowledge that I could achieve this same effect by manually entering my purchases, but that is too much for me and I would not be able to remain consistent.

    The subtext of this tip is not lost on me. Any way that one can best visualize their purchases so as to affect future purchases is beneficial to conscious spending!

  6. avatar

    I personally have a very difficult time handing over cash. This is why at the start of every month I pull out a desired amount of cash that I feel will last me the whole month. If the cash runs out before the end of the month then I try to get by, if not then I will totally cut back on certain items until the end of the month.

  7. avatar

    I’m with Kym on this. For me cash gets spent with no info on where it went, debit or a credit card paid off in full every month gives me control. Plus with the credit card I build up airline miles that I can potentially use in future, and did this past summer to upgrade a long flight to business class.

  8. avatar

    good one. it works. did it this month – came back from working abroad for 8 weeks [not hard enough! all that sun and sea to play in!] , and lived for the whole of november on what cash I had left. Saved a packet.

  9. avatar

    the problem with this method is that it depends on people actually paying off their credit cards at the end of the month. What Dave Ramsey preaches is the “what if” or Murphy’s Law.

    what would you do if you ran up a usual $200 or $300 credit card bill that you were planning on paying off at the end of the month and then you had some kind of an emergency happen that wouldn’t allow you to pay off the CC at the end of the month or the next or the next? I think its a little naive to believe this will never happen.

    I don’t think there is a benefit a company can offer that is worth a risk like that

    I’ve never heard a millionaire becoming wealthy from “frequent flier miles”

  10. avatar

    I use my credit cards, but they are backed by an ING savings account. If I don’t have the cash in the bank, I don’t use a card. It’s kind of my own CDIC (Cathy Deposit Insured Corporation) account. I am really diligent about my finances, though – I keep track of every expense like an accountant. I use my card just for the cash back bonus and pay off the balance from my CDIC account every month. On principle, I hate credit card companies. Because I pay my balance every month, my cash back cards are paying ME for the privilege. That works for me.

    Not everyone is interested in keeping records like I do, though. Most of my friends’ eyes glaze over when I go into the math and records details I go through. However, I view myself as CEO of my personal finances.

  11. avatar
    Ramit Sethi

    Clayton, fair point. But on the other hand, what if not using credit effectively caused you to pay significantly more over the long term (e.g., see the chart I posted above)? Your case of an emergency is a good one, and probably realistic over a long period of time. But the fact that a lack of good credit will cost you significantly is not a possibility, it’s a guarantee.

  12. avatar

    Clayton, that’s what an emergency fund is for.

    I agree with the concept of cash only, in theory but it’s hard for me to put in practice as I hate using cash for all but the smallest transactions (under $10) I never charge more than I currently have in the bank, though.

  13. avatar

    Ramit, also a good point. I do agree with you on the importance of having good credit. but is a CC really the best way to go? Is there not better more predictable ways of creating good credit such as paying utilities, cell phones and etc. The fixed bills we pay every month can be some of the best ways to build credit with very little risk.

  14. avatar

    I haven’t been a very big fan of many of your tips, but I like this one. I think the main issue regarding credit and overspending, is that people don’t realize how much they’re spending. It’s not very discouraging to hand over the same card over and over again, for every sized purchase. If it was a big wad of cash though, I think many people would think twice.

  15. avatar

    I’m also one of those (apparently fairly rare) people who spends more when I have cash. When using credit or debit, I rarely make purchases of $5 or less – if it is something that cheap/trivial, it’s not worth pulling out the plastic for. When I have cash, though, I am much more likely to spend $2 here and $3 there, seeing how little it effects my overall amount.

    Since I pay my credit card in full every month (and @ Clayton – I have an emergency fund in place for the occasions you mention), I don’t think it is a problem for me to use credit. I have learned to pay close attention and start noticing when I’m putting more than usual on my card though – then I know I need to be a little more careful about my spending habits. I have learned to identify these small things before they become bigger problems!

  16. avatar

    If I have any cash, it usually gets all spent up on small things. A beverage, a pack of gum, a bag of chips, and before I know it, it’s gone. Like Stephanie said, these items one at a time don’t affect your total amount much, so I think “oh it’s only $2, and I’m hungry/thirsty/whatever”. I bring my lunch to work, but if I have cash on hand, I spend as much money on incidental snacks, beverages, and other incidentals as I would if I was eating out. But only if I have cash.

    Using plastic, not only is it incredibly difficult to justify pulling it out for anything under $10, it is also very easy to track my spending. Once the charge clears (usually less than 24 hours) it will show up in your online statement (especially true of debit cards). I check my online statements every couple of days to evaluate how much money I have left vs. how much I have spent. I use Mint to categorize all my transactions, which is something that would be impossible if I was using cash, because I wouldn’t remember what I’d spent it on.

  17. avatar
    Writer's Coin

    This is something I’ve been meaning to do but just haven’t put into action. I saw that Flexo did it too so now I’m realizing I need to just buck up and do it.

  18. avatar

    “But the fact that a lack of good credit will cost you significantly is not a possibility, it’s a guarantee.”

    This is not true. What are you basing this statement on? Opinion? Do you have facts and figures from studies? What examples do you have? Because the one in this post about purchasing a home doesn’t apply since you can do manual underwriting to prove your ability and history of paying your debts in order to get a good interest rate.

    How much interest in the long run do you pay for that wonderful credit score? Between credit cards, car loans, personal loans, whatever. In the long run you will have paid more for that credit score than a person who doesn’t have a credit score and doesn’t borrow money will pay for what he is purchasing.

  19. avatar

    To reiterate what Bill said, can you break down the math for us?

    Say you use cash and save between 10-20% on all purchases for a lifetime (or some period of time) since you will spend less. If you can’t do manual underwriting or for some reason end up with a slightly higher interest rate on a mortgage because of this, how much does is cost you?

    Compare that number to spending 10-20% more on all purchases (by using a card and building a credit score) and saving a bit on a lower interest rate.

    Which comes out better?

    Do you have any experience with manual underwriting? If you truly live debt-free, you are less of a liability for a lender, and should qualify for a decent interest rate. I’ve never bought a house or applied for a loan, so I’m really interested in this.

  20. avatar

    Dang people. If you can’t trust yourself with credit, then don’t use it. That is an important thing to know about yourself and it is admirable that you take steps to limit the financial damage you can do. But the problem is not credit itself. It is how you handle it. I know any number of people who *don’t* spend more on a credit card than they do using cash. I enjoy my 1 – 5% cash back on purchases. I like not having to pay extra for insurance when I rent a car. My regular interest free loans from the cc company let me earn interest on that money elsewhere. There are lots of reasons it could be extremely financially savvy to use credit. But only if you know you can do so responsibly. Not using credit cards is not one size fits all advice. It’s probably great advice for many people. But it isn’t necessarily so for everyone.

    Emergencies happen. This is why emergency funds exist. Once I paid off my student loans the very first thing I did was start an emergency fund. I maintain that fund at a level of “one year’s living expenses” because I am paranoid that way. Usually 6 months is ok and some people are good with even 3 months.

    It is important to note that a year’s worth of living expenses is usually much lower than a year’s salary. Is it hard work to save up that much? Yes. And if you have a savings goal like that, you probably get into some pretty decent spending habits to start with.

  21. avatar

    Nick – re: people not realizing how much they are spending (or overspending) – that’s totally correct. I thought I had pretty good spending habits but found my debt slowly growing and couldn’t start saving. Lo and behold, once I put together a spreadsheet of everything going in and everything going out, I started noticing some unhealthy spending patterns.

    Even though now I have much more sophisticated personal finance tools (and have actually started the savings fund and the Roth!), 80% of the work came from a simple spreadsheet and using it to keep track of what I spent an to plan spending, instead of just wondering where the money went.

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  23. avatar
    Chris C

    I agree with some of the other “Dave Ramsey” fans. Manual underwriting can be done that would NOT depend upon a FICO score. This is what SHOULD have been done for those with changing income over the previous number of years.

    Also, as for using a CC vs. cash. I too believed that using the CC was saving us money. Until I made it hurt a little. I set a goal for us to spend 18% less on groceries by using cash only. We recently had a month where we spent 27% less than we would have about a year ago, simply because it was a little easier pulling out the CC to pay for the groceries.
    And we did payoff the bill every single month, so we did get 1.5% back on our purchases. Having the cash in hand and saying “How much is that?”, and “How much do we need for the rest of the week?” is much easier when you see the money in your hands as opposed to having to see how much you spent using Quicken/Excel every time you needed to go to the grocery store, much less it’s a lot easier not having to keep the spreadsheet/Quicken up to date all the time.

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  35. avatar
    Crafty Sundays

    I agree that using cash with make you a more conscious spender. We switched to cash two years ago and have paid off twice as much as before when we were trying to budget with credit cards. I love the cash system so much I even started making and selling my own pretty envelope sets. Check out my Etsy store if you have a chance.

  36. avatar
    sumit gupta

    Very productive and smart information. It will surely help me if I able to apply it efficiently. nice work keep it up. even I also write articles something like this you can read here

  37. avatar

    Ditto! I hate to swipe a card but cash burns a hole in my pocket. I would love to see some statistics on what percentage of the population is like us…rather than always the same studies quoted about the reverse.

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