Here’s how I’m saving money, despite higher inflation & interest rates

Man ponders a receipt as he looks at his laptop.Man ponders a receipt as he looks at his laptop.

Rising inflation and interest rates have probably got you thinking about the potential impact on your wallet.

It’s certainly crossed my mind. So I spent time thinking about ways to stretch my family’s money further.

I’ll note that it was also important to me and my wife to have money left over for savings and/or investments.

So, here are some ways that I’m saving money.

Budget 

First and foremost, I got a budget going. 

I used a free budget template on Google Sheets which I found here. At the top right of the page, click “Template Gallery” and I chose the “Monthly Budget” option.

I got pretty precise with my estimates, using actual figures I came up with by analysing my bank statements from the past 12 months. In reality, however, using ‘reasonable estimates’ is a good starting point to seeing where your money goes each month.

You’ll probably be surprised at how much you’re spending on some items, which could be a perfect starting point to make savings!

Put away for big expense items 

I think this is a big one for most people. One month (or week, or fortnight – whatever your schedule for getting paid is) you seem to have plenty of spare cash to spend, and the next you’re back in the red. The culprit: a large land tax payment, a child’s birthday, or a car registration. Sometimes you can split these payments into more manageable bites, but others you can’t. When that’s the case, set cash aside regularly for these payments.

For example, if you expect your land rates bill to be $1,500 for the year, that’s $28.85 per week or $125 per month. Sure, it’s still a decent chunk of change, but either of those options are probably more bearable than a $1500 lump-sum payment.

So, list these big-ticket items in your budget. Add up the total annual amount due for those and chip away at them through the year. In effect, you’re smoothing out your expenses and setting yourself up for a better routine.

Choose annual payments

This mightn’t suit everyone, but where possible I’ve changed my subscriptions to the ‘annual’ payment option. 

Take Disney+ – a streaming service from Disney (NYSE: DIS) which my kids love – as an example. It’s currently $11.99 per month, or $119.99 for the year, which works out to be $10 per month – a saving of 16.6%. Then, in the months between, I’m putting away $10 per month into a separate account (just like I am for the land rates bill and water bills, etc.) to make sure I’ve got the money set aside for next year’s payment.

In doing so, though, it’s important to be careful not to create a cash-flow problem for yourself in the immediate future.

Find discounted alternatives

Human beings are typically a pretty routine species. We find something that works and often stick with it for simplicity. But that habit might be costing you. 

Here’s an example. To buy a 48-pack of nappies costs us $32 at Woolworths (ASX: WOW). I decided to check out prices on Amazon (NASDAQ: AMZN)’s store. Not only was it cheaper, I could get them even cheaper still by setting up a recurring purchase of that item. You won’t be able to do that for everything, but it’s worth a look for some of your more regular purchases.

Identify other habits

Speaking of habits, it could be worth looking into habits elsewhere in your life. Our grocery bill is typically pretty large. One way we can cut that back is changing what I have for lunch. I was regularly buying pre-made salads from Woolworths for simplicity at $6 a pop. It’s convenient, sure, but I can make something just as healthy (if not healthier) for less.

Invest in yourself

From the get-go, I figured out what my family’s monthly income was expected to be. After I accounted for the absolute top-priority payments (e.g. any debt repayments), I calculated what 10% of that total income would be and committed that to savings and/or investments.

This takes discipline and it could well require you to cut out some other expenditures that you deem to be less necessary. 

But this is an important step. After all, very few of us want to work forever. Saving money effectively buys you flexibility with your time – maybe not today, but in the future.

Interest rates are going up, which means any cash saved could earn a higher return. Perhaps even more opportunistic is the fact that the stock market has also come down, affording those people with a long-term time horizon an opportunity to buy shares at very attractive prices. 

If you can commit to setting aside a certain amount of money each week, fortnight, or month, doing so could be an excellent way to reward the future you.

The post Here’s how I’m saving money, despite higher inflation & interest rates appeared first on The Motley Fool Australia.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Motley Fool contributor Ryan Newman has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet (A shares), Alphabet (C shares), Amazon, and Walt Disney. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2024 $145 calls on Walt Disney and short January 2024 $155 calls on Walt Disney. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), Amazon, and Walt Disney. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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