How To Save a Lot of Money, Long Term and Short Term
What are some simple steps that can save you money now and over the long term? What can you do to reduce the temptation to waste money? How can you control the costs of big expenditures and major purchases?
Don't Let Emotions Decide the Big Expenses
Don’t make impulse decisions and let emotions determine what you do with regard to major expenses. Never buy a car because you are in love with it, and it is stupid to buy a car because you’re annoyed at one major repair bill. Don’t even shop for a house without calculating what you can afford, factoring in taxes, insurance and ongoing maintenance costs, then only look at properties you can comfortably afford. Do not let your teen tour colleges around the country and pick a school based on how homely or cool the campus feels, raising a $40,000 four year degree to $80,000 because it now requires out of state tuition and room and board on campus.
The advice to sleep on it before making a big decision is far too often ignored, but it remains true. The idea behind it is that you are less likely to make a bad choice if you think about it in the morning, when the initial excitement has worn off.
You need to apply the same emotional restraint when it comes to the big decisions.
Needs Versus Wants - And Controlling the "I Want It" Impulse
Differentiate needs and wants, and when you’re short on money, only buy needs. Your kids need food and clothing; they want Chuck E. Cheese and Nikes. You need shelter, but you want a large home in a respectable neighborhood. You’ll be able to accumulate wealth by buying only needs and managing your wants, saving more by focusing on the positives of what you want to achieve.
How do you control the constant temptations to buy things, and the advertising industry aimed at telling you these things are needs or acceptable indulgences? Christy Wright says you need to focus on the positive end results of what you are aiming to achieve, like more energy after you lose the weight, than the frustration of not having that high calorie snack now.
This concept applied to finances means focusing on not worrying about how you’ll pay your bills when you lose your job or forced to retire at 62 for health reasons, instead of the frustration of not going on a vacation this year so you can save that money or having the awesome $500 birthday party with a preschooler and having a $50 cake and lots of friends over instead so the other $450 can go into their college fund or pay off the credit card debt leftover from Christmas.
Search for the Simpler Solution First
Look for the solution based on simplification first, before you rush to the solution someone is selling you. Before you start planning a major home remodel for tens of thousands of dollars, look at how you can remove furniture and rearrange the house to get better utilization of the existing property.
Likewise, you need to look at how you can de-clutter your home by donating items before signing up for a storage unit. Look for activities to drop from your schedule like scaling back kid extracurricular activities before you hire someone else to shuttle the kids around. Look for costly indulgences you pay to offset the guilt of not being home or ways you fritter money away because you’re so busy that you can drop if you’re home more, before you plan on working overtime and finding childcare to support it.
The One Word That Can Save You Thousands
One of the biggest cost control methods in your life is learning to say “no”, then never given in to it. In the case of children, your kids need to learn that “no” means “no”. You’re the parent. If you say no to watching TV past 9 or requests to get a gaming console, hold the line and enforce it. If you waffle or give in, you get the classic scene of the kids repeatedly asking until the parent gives in. Hold the line every time early on, and you won’t face that horror later as the kids retain the ability to remember and ask for something repeatedly over days and weeks.
Likewise, as a parent, you have the obligation to tell children “no” when they want to do something dangerous or unacceptable – and as Dave Ramsey says, kids need to understand that “no” can be a complete sentence. So when your kids ask for something you cannot afford or they shouldn’t be allowed to do, tell them no firmly and without elaboration. Discussing your reasons opens the door to them wearing you down with requests or questioning, “But Dad bought that!” Simply say “no” and stay with it.
This is hard if the kids haven't faced a parent saying no and not justifying it, or if "no" was the start of a negotiating process. If they keep asking after you’ve laid down the law, spank younger children or and punish older children for disobedience. Anything else could lead them to think that emotionally wearing down the parent with pleading is acceptable, and that cannot be. You’re not their friend, but their parent, and that means you decide what is right for the family – including spending.
No, you aren't going to join another sport team that costs me a thousand a year, I need to save for an emergency.
No, you can't have the $500 birthday party, cake and 15 friends is fine.
No, you can't have a bigger, more expensive console. If you want games, earn the money to buy them yourself.
No, we aren't sending you to camp when we're paying off our debts.
No, we aren't buying a new car for a teenager - we're paying off our own.
No, you can't go to out of state college - it doubles the cost but won't double your salary as an adult.
No, you can't go to private school - you'll use up the college fund in two years. And no, it won't get you much higher paying job, only much greater student loan debt.
Remember to tell your inner child “no”, too, whether the urge to plan a weekend away with the girls, buying that fancy electronic doodad or expensive outfit that blows the budget category. That means telling a spouse no to a spontaneous vacation. It means saying no to someone who selfishly plans a destination wedding, regardless of the cost to others to travel there. It means saying no to others who demand that you loan them money they don't repay. It requires saying no to the impulse to upgrade to a more expensive car.
Is Family Planning a Budget Necessity?
When you think about having a family, the quoted costs of $200,000 to $500,000 per child are daunting. However, these estimates assume that 35% of that amount is due to housing costs and 14% is transportation. If you don’t rush out to get a bigger house (or start in a starter house and stay there) and keep the same sedan as you add car seats, the cost of raising a child is cut almost in half.
That means you’re looking at $100,000 to $250,000 over 18 years, that’s 5K to 15K per year – a large portion of which is childcare and activity costs that parents can likewise control. Kids are only major money sinks if you don’t recognize the major ways lifestyle costs explode when we follow the standard life script, like buying a bigger house and car with each new member of the family.
One factor to consider is that the cost of the second child is a quarter (or more) less than the second, as long as you can enjoy economies of scale. Think hand me down furniture, shared toys, cooking in batches, not much more for one sitter for two kids as for one. As long as you don’t assume you need a bigger house, bigger car, twice as many activities (and fees) for twice as many kids, you can probably afford another child.
Only Buy The House You Can Afford
“The Millionaire Next Door” book and the studies that led to it discovered that too many people live in anticipation of becoming wealthy and in short ensure that they won’t. Buying a house more than three times your annual realized income means you’ll spend so much on the house you don’t have money to save and invest and actually grow your net worth.
Larger houses and more expensive neighborhoods tend to bring higher property taxes, higher insurance, more pressure to decorate lavishly or spend more on lifestyle. A large percentage of millionaires controlled their expenses by simply staying in the same house for more than 20 years, enjoying a paid off home while investing the mortgage (after that was paid off) for retirement or other goals.