How to Stop Spending Money and Start Saving

With the emergence of technology, automation, and of course online shopping – all of which make purchases easier, faster, and more convenient – figuring out how to stop spending money on unnecessary things has become an even bigger deal than it used to be. To add fuel to the fire, a lot of times when people spend money impulsively it’s tied to how they deal with their emotions, what’s going on in their lives at that particular moment, and/or their relationship with money in general. But there are tried-and-true ways to stop spending too much money and start saving for a more financially secure future. 

Before we go into those financial tips and tricks, I thought it was more appropriate to start with the psychology of spending money to explain the relationship many people have with money.

As a practicing financial advisor, before I take a detailed look through a person’s budget, spending habits, and bills, I start by getting to know the person and their relationship with money. The reason is, until we can change a person’s habits and how they view money, we’ll always be fighting an uphill battle when it comes to controlling their urge to spend money on something that’s not truly necessary, just to get that endorphin-filled wave of happiness that people can get when they buy something. 

When you look at your current relationship with money, I ask you: is it a positive or negative relationship?

If money is often the cause of stress and anxiety, or you are always feeling limited in what you can do or experience in life because of a lack of money, that’s a negative relationship with money – and your money problems probably start there. On the other hand, if you view money as a tool to help get you closer to the quality of life you desire and don’t allow money to sway your emotions negatively, you’re on track to having a positive relationship with money. 

With that said, it’s important to take time to self-assess your relationship with money. The goal is to intentionally create a new outlook that allows you to be optimistic about your ability to manage money, so that you can eventually live your life the way you want and still save.

AWhen you’re experiencing negative emotions like stress, sadness, or boredom, the 48-hour rule is an effective way to stop spending money. It’s one of my favorite techniques: Anytime you’re about to purchase something but are not sure if you should or if you can afford it, give yourself 48 hours before actually making that purchase. 

Typically, after 48 hours, the eager emotions that were initially pushing you to make the purchase will be gone. If your desire to make the purchase sticks around, you can now create an intentional game plan for how to purchase the product and still save.

Once we get past the initial phase of identifying – and working to address – our emotional spending habits, we can move on to some more practical steps for how to stop spending money and start saving.

To learn how to stop spending money, you need to know exactly where your money goes. Understanding your cash flow, in regard to how much money you have coming in after taxes and how much money you spend per month, is critical. This allows you to identify opportunities to stop spending and start saving money. 

With that said, take this opportunity to look through your recent credit card and bank statements to track and get familiar with your monthly flow of money.

Now that we know how your current spending habits are set up, I want you to create a new monthly budget that’s reflective of your goal to stop spending and start saving money. For example, if your goal is to build an emergency fund, then find how much money you can save by either reducing your expenses and/or making more money from picking up a side hustle. 

Once you’re able to create this surplus in your budget, immediately pay yourself first by building an emergency reserve with that “new” money. Make sure, when you are completing this step, you take the time to be honest and hold yourself accountable. That new monthly budget that you created will need to be followed and studied in order for you to hit your goal and take back control of your finances. If you need a budget template, there are plenty of generic templates that you can find by searching the web.

The next question a lot of people have when they get to this step is, “How much is a good number to save?”

The first answer is to save whatever you can afford after paying your necessary bills. Once you get passed that stage, ideally you should aim to save 20% of your net income. This metric comes from two well-known concepts: the 80/20 rule and the 50/30/20 rule. Both are effective models to follow. 

The 80/20 concept is a general budgeting rule that says 80% of your take home or net income should go to necessary expenses such as rent, mortgage, utilities, and other bills. The remaining 20% should be put into your savings. For example, if you make $4,000 a month after taxes, this means $800 should go to savings and $3,200 spent on essentials. One of the reasons this rule works so well is because it’s a simple way to prioritize savings and control your budget based on a percentage of income. This can help you get out of the cycle in which expenses take up 100% of your take home pay. 

The 50/30/20 rule is based on the same idea, but it takes the concept a step further by dividing your take home pay into three categories instead of two. The rule guides people to spend 50% on their needs, 30% on their wants, and 20% on their savings. 

Both of these rules are effective methodologies you can start using today to stop spending and start saving.