One of my favorite ways to help people is to encourage them to save for retirement. Or better yet, to save and invest to work towards financial independence. But when I recommend saving, people often tell me they’re not sure how to start. That’s understandable: if you’re used to spending your money a certain way, you may not have any money available to invest. But I can help you out with that!
Let’s see if we can get you to save money today and to start investing today. To make this happen, I compiled a list of ways you can save money on recurring costs: the costs you have every month or every year. Reducing these costs is efficient because you will save money not once, but many times.
If you spend half an hour finding a website where the new washing machine you want is $20 cheaper than on some other site, you’ll have saved $40 an hour. But if you spend that time reducing a recurring cost, such as your electricity bill, by $20 a month for a year, you’ll have saved $480 per hour. That’s why cutting recurring costs is so important.
Of course, some recurring costs are more difficult to lower than others. Your biggest expense might be housing, in the form of rent or mortgage payments. While it’s a great idea to save money on housing, that would take time. And to start investing today we need to free up money today.
So here’s a list of ways to save money on recurring costs today. Find one to begin with and reduce your monthly costs. Then set up an investment account to automatically debit your bank account each month for the amount you saved, and to invest the money in stock index funds. You can do all this in just a few hours.
Let’s get going.
Ways to save on recurring costs
- Shop around for cheaper utilities. A few weeks ago, my significant other and I switched to a cheaper electricity provider. We expect to save €150 on our electricity bill this year and €100 per year in future years. Switching took us all of 15 minutes. Bam. Oh, and our new provider generates 100% renewable energy from European wind turbines and solar plants.
- Cancel software subscriptions. Many software providers want you to subscribe to use their software. For instance, you can pay $10 a month to subscribe to Microsoft Office, rather than paying for the office suite once. Ask yourself: will I end up paying more for the software over time with a subscription than with a one-time purchase? Better yet, ask yourself whether you need the software at all. Can you replace Microsoft Office with the free and open source LibreOffice? Do you use your Spotify subscription more than once a week? Cancel your subscriptions. You can always re-start them if you regret your decision (but you probably won’t).
- Shop around for cheaper insurance. Compare your renter’s insurance, health insurance, car insurance, or any other insurance with offers from other insurance companies. Some insurance providers will offer you a discount for bundling your various insurances with them. How much can you save per month? If you don’t want to switch, call your existing insurance provider and ask for a discount in return for the company keeping your business. I switched to a different health insurance provider last month, which took ten minutes and will save me €15 per month. Saving money doesn’t get much easier than that.
- Cut the (cable) cord. Canceling your cable TV subscription can save you dozens of dollars a month. Replace your subscription with a subscription to Netflix (which is cheaper) or watch less TV altogether.
- Switch to a cheaper cell phone plan. Take a look at your phone usage data: do you use all the gigabytes of data you pay for? If not, switch to a cheaper plan. Even if you do use most of your data allowance, see if you can save money by switching providers. But don’t sign up for a two-year contract. If you live in the United States, for example, T-Mobile lets you sign up for month-to-month plans. You might be able to save even more by trying Republic Wireless or Google’s Project Fi.
- Eat out less. Count how many times a month you eat out. Then set a rule for yourself that you’ll cut that by one restaurant meal per month. If you eat out four times a month, on average, make a rule to stick to three times or less. Take the money you’d spend on that fourth restaurant meal and add it to your monthly investment. Do it today.
- Shop at a cheaper grocery store. A few years ago, there was a period when I shopped at Whole Foods. It hurt to see my grocery bills. The food was excellent, but way too expensive. Eventually, I started shopping at Trader Joe’s, which was a little farther away, but much cheaper. I compensated for the extra travel time by going to Trader Joe’s once a week, only supplementing with a few perishable items from Whole Foods during the week. It cost me an extra half hour, but saved me dozens of dollars a week. So try a cheaper grocery store and compare your grocery bills. Did you save $10? Good: add $10 per week (let’s say $40 per month) to your monthly investments.
- Prepare your own lunch. If you eat out frequently for lunch, try preparing your own lunch. Start today by preparing your lunch for tomorrow. If it saves you $3 per day, that’s $60 per month or so. And investing an extra $60 per month is nothing to sneeze at!
- Apply for a better credit card. I used to have a credit card that gave me a 2% discount on everything I paid for using the card. That added up to hundreds of dollar a year. So figure out how much you spent in the last 12 months with your current credit card, and calculate how much you’ll save in the next 12 with a better card. Sign up, divide your savings by 12 and add the resulting amount to your monthly investment.
Pick one and start
Some of these tips may not work for you and that’s all right. If you can use even one or two to save some money, you can start investing. By investing monthly, you’ll form a habit. Even if you start small, investing consistently is the way to long-term wealth.
Next, when your pay goes up or when you get the chance to save on other expenses, increase your monthly investment. You may only invest tens of dollars a month now, but after a while you might be saving hundreds of dollars a month, or even more than a thousand. At that rate, you’ll be financially independent decades before the traditional retirement age.
Now go: reduce one of your recurring costs and set up an investment account (for example with Vanguard). Set the investment account to automatically debit your bank account for the dollar amount you just saved, every month, and to invest the money in index funds. Start with any popular stock index fund. You can always switch funds later. Just start investing today!