After reading Greed is Good by Jonathan Hoenig I was presented with the most simple but overlooked tenet of saving: stop spending. While reading an entire chapter on not spending my money I was close to putting the book down. Who needs to read a whole chapter on such a simple idea? But when I began implementing the concept of not spending money I understood how that money could be better put to use. Halting the 'Reward System' is how most people begin to spend less.
The Reward System
After a week of hard work what do I do? I go out to a nice dinner. I eat more than I should, I drink more expensive drinks than I normally would and I justify it all with the notion that I earned that nice dinner.
Maybe I wake up a little late in the middle of a rough week. I don't have time to make my own coffee so I pick up a $3 cup at the coffee shop on the way to the bus.
Consumables (food and drink) comprise the majority of rewards that people offer themselves. Limiting these rewards is the beginning to saving money. I didn't say eliminating these items was necessary, just limiting them makes a big difference. Here are some examples of how I do it.
1. Coffee: One of my main indulgences is coffee. I like to drink the best, which is typically the most expensive. One way I limit my spending here is I buy cheap coffee as well and save the expensive stuff for the weekends. If I have coffee left over I leave it in the pot and re-heat it the next day. I also add the specific brands of coffee I enjoy to my 'gift list' so family and friends have simple ideas for birthday and holiday gifts. Also, I grind and prepare my coffee before I go to sleep so I only have to wake up and push a button so not having time is rarely an issue.
2. Restaurants: I love sitting down for a great meal at a great restaurant. Aside from loving good food I do this because sometimes I don't want to cook. About half the time I get the notion to go out, I stay in. I have found that pizza dough is pretty easy to make at home and freeze. I make a few batches of pizza dough on a lazy Sunday and freeze it. When I get the notion I pull out the dough, top it and cook it for an easy dinner that saves me, on average, $40-$75. If I have any cash in my wallet I stash it in my money jar/envelope.
Take a few minutes and write down some simple rewards that you can limit to save yourself some money. Periodically, have your reward be to put some cash in a jar or envelope.
So you have a jar of money growing under your bed and it is becoming impossible not to grab a few dollars out every now and again. I do the same thing: "I don't have time to stop by the ATM, I just need to grab a few bucks and head out."
The best way to curb this behavior is to commit the money when you have as little as $25. There are good ways to do this and there are better ways.
1. Savings Account: This is a good way. This primarily allows you to save money without seeing it. Since it's in an account (that you can't access from an ATM) it will be less tempting to grab a couple dollars. Unfortunately, savings accounts these days are useful for storing your money, not for growing your money. Be sure to have plans for your savings account dollars and do not just leave that money there.
2. Lending Club: This is a better way. This is a website site that allows investors to use their money to partially fund loans that will grow at a specified rate with a specified risk. The great part about Lending Club (and other services like it) is that it allows you to invest as little as $25. You can choose who you loan money to and you can watch your money grow. Keep in mind that this is not a method to double your money, you're not a loan shark and there are some risks associated with investing in this manner. It will allow you to see moderate returns on very small investments.
Basically, when I have as little as $25 in my jar, I take it to the ATM and deposit it. Then I get online and transfer that much to my Lending Club account where I can commit it to different loan projects to offer a moderate return. If you continue these simple habits over time you will cultivate a considerable amount of money in your Lending Club account.
This is an excellent, easy way to begin saving and investing with very little money.