It is essential to control spending if you intend to save more and accumulate wealth. Lifestyle inflation is the enemy of a good savings plan and detrimental to any plans for attaining Financial Independence. A simple definition of lifestyle inflation is when a person expands their expenses to match increases in income. I will use myself as an example of how lifestyle inflation was one of my biggest financial mistakes.
Avoid lifestyle Inflation
Upon finishing university, I got my first job, working for an engineering consultancy in Manchester, UK. Since I had no savings, I moved into a shared house near the city centre and rented a room. At £300 including bills, the monthly rent was very affordable. I also hopped on to a cheap bus every morning to get to work. Life was simple and very affordable.
However, within a year of being on the job I was given a 10% pay rise. Imagine that, I had never earned so much money before and I felt like a king. Instead of maintaining my lifestyle and saving more, I decided to rent a one bedroom flat located further away from the city. The monthly rent alone went up to £400. On top of that there were bills to pay: council tax, electricity, internet and heating and water. These amounted to £170. At a total of nearly £600, I had managed to double my accommodation expenses after just a 10% pay rise!
As if the wastefulness mentioned above was not enough, I went on to purchase a car which I really did not need as I used to travel to work on public transport. The car turned out to be a nightmare, requiring regular expensive repairs and was very expensive to insure since I was a new driver. I eventually left the job after three years at the height of the recession in 2010 and was astonished to realise that I had managed to save nothing in that time and had nothing but a rusty car to show for it. The car eventually died and got scrapped for pennies not long after.
Turn your financial life around
Following this forgettable episode in my life, I moved to the south of England to look for new employment while living with family. I landed an engineering role and was determined not to repeat the financial mistakes I had made with my previous job. My basic financial literacy improved and i was able to start saving money effectively, which laid down a good foundation for investing wisely. From personal experience, here are my top tips for cutting expenses and saving more money.
1. Shop at discount supermarkets
Shopping at discount supermarkets like Aldi and Lidl can have a noticeable impact on your finances. If you want a bit more variety you can use the savings made to treat yourself and buy other goods at speciality shops like bakeries or butchers.
2. Keep mobile phone costs to a minimum
We often hear stories about how millennials are blowing loads of money on iPhones and holidays. In the long term it is cheaper to buy the phone separately (SIM free) and shop around for the best sim only contract. Money can be saved by buying a refurbished phone, I managed to buy a virtually new refurbished iPhone from a leading retailer for a third the price of a new one.
3. Make your own work lunch
This tip is so underrated. A lot of people have a habit of buying lunches during at work. This can turn out to be costly over the long term. It only takes a bit of planning and a few minutes to prepare a healthy tasty lunch. You will know what is in it and make it your own way while saving cash along the way.
4. Get your car MOT done by the Council
If you own a car, I recommend that you have the annual MOT test done by the local council rather than a regular garage or worse by a fast fit centre. The council has no motive to fail your car for repair bills and therefore will be impartial. You can use this link to find your nearest UK council MOT test centre.
5. Buy a 3 to 5 year old used car
Avoid car finance at all costs. Most cars depreciate at astonishing rates and lose more than half their value in a few years so to me it does not make sense to buy a new one. It is best to save upfront and pay cash for an approved used vehicle from a reputable source. I find that the sweet spot is a car that is between 3 and 5 years old. Also ensure to carry out basic maintenance like regular oil changes and tyre care to avoid massive bills or breakdowns in future.
6. Always haggle for the best deals
This tip is crucial for ongoing savings year after year. Always make sure to haggle for a better or the same deal when the contract for a service is coming to an end. This can be done for services including gas, electricity, car insurance, internet and mobile phone contracts. Stand your ground and threaten to leave if the company does not offer a good deal. Top haggling tips are provided by Money Saving Expert.
7. Always pay upfront and avoid instalments
In most cases it is more efficient to pay for goods or services upfront as a lump some instead of paying by instalments. When paying buy instalments it may seem like it is not a lot due to the small monthly payment but often you will pay a large amount in total.
Banks or service providers know that most people are not willing to pay the total amount at once, therefore they apply exorbitant fees and interest rates. Examples for this are purchase for cars, household goods such as TVs, clothing, mobile phones, electrical goods and car insurance. This point is illustrated by the image above showing the options I was provided with for renewing my annual care insurance premium. Needless to say, I went for the first option and saved over £120.
These are my top tips for cutting expenses to save more money. Let me know below if there are any other tips you would like to share.