Living in the coolest cities is expensive. That’s a reality. That doesn’t mean you have to sit back and accept that you won’t be able to save anything substantial though. It just means you have to be a little more savvy and have an extra-effective game plan than friends living in cheaper areas to reach your saving targets.
Carry out our 5-point action plan and you’ll be squeezing more out of your monthly salary than you thought possible in no time. With any luck, you’ll see that holiday you had your eye on or brand new car you’ve been talking about become a realistic option in no time.
1 Set up a savings account
Let’s start with the basics. If you haven’t already done so, set up a savings account! Seems obvious, but just by being organised and moving a little money at the start of each month into your savings, they’ll quickly grow.
2 Get on top of your money
Now you’ve got your savings account up and running, you need to know how much you can put in each month to make sure you’re not constantly dipping into it. To know this, you need to understand how much money is coming in each month, how much you’re spending on essentials (groceries, rent), and, how much your spending on non-essentials (4 gin and tonics every Friday, those 2 Pret coffees a day, 1 new pair of Levis a month, that sort of thing).
This can be done in a simple Excel, or, with the help of an app. With tech-focused newcomers such as N26 and Monzo, traditional banks are having to up their games, so there’s no shortage of options and the chances are your current bank will have something capable of helping you out. If they don’t and you want to use an app rather than an Excel, try Fintonic, it connects to your current account and equips you with a detailed breakdown of where your money is going.
3 Identify where you can cut back
Now you know how much you have coming in and going out each month and on what, it’s time to make some choices. Divide your list of expenses into necessities and excesses.
Now, subtract your average monthly necessities and excesses from your net salary – how much are you left with? Study your excesses list carefully – what can you cut out? Be realistic, there’s no need to get rid of everything and you deserve a treat every now and then. But I’m sure there are a few things on your excesses list that are more expensive than you thought and now you’re doubting whether it’s worth it.
As an example, if you are a Pret a Manger fan, maybe you could switch to your office’s coffee? A cup of Pret coffee will set you back about ₤2.10 – if you have 1 per working day, per month, you’re spending ₤42 per month on coffee. Fast forward a year and that’s ₤504 you could have saved. You get the picture.
Finally, if you have a room going free in your flat and you want to reduce your outgoings even further – list it on Badi! The average room in London goes for ₤750 per month on Badi, that’s ₤9,000 extra each year! Not only will you be tucking away a significant extra in your savings each month, but you’ll also gain a great flatmate.
4 Set long and short-term goals
So, you’re on top of your money – you know what you’re earning and where you’re spending it. You’ve also identified where you can cut back. That means you’re ready to start setting some goals. First set your monthly goals, be ambitious. Add up all the excesses that you identified as being able to live without plus any money you already have leftover each month (if applicable). From now on, as soon as you receive your salary each month, transfer that amount from your current account to your savings account.
Work out how much you should have in a year or in 2 years and work hard to ensure you stay on course and get there. Knowing what you could realistically have saved in 2 years will also serve as a great motivation for you to keep going.
5 Watch your savings grow
Now you’re up and running! Your savings will grow slowly but steadily, and if you want to take it a step further, consider educating yourself in investing. Investing is a long-term path to financial freedom, so it’s best to start early, even if your initial contribution is fairly small. As scary as it sounds, investing is much more accessible than you may think, and it can generate up to three times more wealth than a low-interest savings account over a period of 15 years. Worth digging a little deeper, right?
That brings our savings action plan to an end. Hopefully it will serve as your first step to you living a more financially stable life and has demonstrated just how easy saving money can be even if you’re living in an expensive city with limited earnings. Happy saving!