As a follow-up to my post about easy ways to save more money, I want to talk about the flip side of things—hard ways to save more money.
Specifically, I want to talk about the very worthwhile high effort, high impact ways to make a big difference in your financial situation.
As a refresher, there are four main categories all savings advice falls into, based on effort and impact.
Last week, we touched on the ‘solid tactics’ side of things. Today, I want to talk about the things you should prioritize—aka, the hard stuff.
Why prioritize these ways to save more money
There’s a time and a place for savings tactics, and the ones I covered last week don’t take a lot of effort to maintain over time. They’re sustainable, and can make a difference as you save up for your goals!
But if you only have the time or mental energy to do a few things for your finances, they’re not the ones I would pick.
When it comes to making a serious impact on your finances, and accelerating towards your money goals, it’s no surprise that the difficult-to-implement tactics and decisions are the ones that can have the biggest impact, both in the short and long term.
So if you’re only going to choose a few things to focus on when it comes to your money, these are the big wins that will let you bypass smaller savings efforts if you want to. (Yes, seriously.)
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1. Track your spending
Tracking your spending isn’t necessarily hard because of the skills and information you need to learn, or about the time you need to spend on it, but because of the feelings involved (I will never stop randomly telling people that money is about feelings, I really won’t).
It’s hard to look at your spending laid bare in a spreadsheet, and even harder to keep up the motivation to stay accountable when you want to reload your Starbucks card even though you know it’ll put you over your planned spending for the month.
However, as with most hard things, it’s also exceptionally worth the effort. While there are apps that can handle keeping tabs on your spending for you, there really isn’t a single better way to understand, change, and prioritize your spending behaviour than writing down every dollar you spend in a spreadsheet or (if you’re into this) on paper.
It forces you to be more mindful about your spending, and over time, it can help teach you how to spend more on the things that matter to you and bring you real joy—and where you can cut back on spending without even noticing the impact on your life, because it doesn’t.
2. Keep your housing costs low
Effort: 7 to 9, depending on your area
Where you live is a deeply personal and emotional decision—not to mention, there are pretty hefty switching costs once you’ve decided. I’m not just talking about the fees involved in buying and selling a house either—moving is a big deal for renters, and let’s be real, packing up all of your stuff is a hassle no matter where you live or how you pay for it.
That’s why it’s even more important to spend time making a smart decision about your housing costs when you do have the opportunity to make the call. You’re probably locking in those costs for at the very minimum, a year, if not much longer—and it’s likely the biggest line item in your budget.
Since “low” housing costs depends a lot on your income and the city you live in, there are a few guidelines to help steer you in the right direction when you have a chance to make the call about your housing costs.
Spend no more than 30% of take-home income on housing
If you can swing keeping your housing costs at less than 30% of your take-home pay, you’re in a good spot financially. At different income levels, this looks very different—for example, when I graduated, I made it work by sharing a decidedly “student” apartment with a roommate to keep my rent under $600, which was 30% of my total take-home income at the time. These days, it looks more like a mortgage, because my income changed.
There are situations where there are just truly no available options in the overlap between “available housing” and “less than 30% of my income,” but if there are, you’ll be much more able to balance saving and living comfortably (read: not cutting out coffee) at the same time.
Buy a house no more than 3x your annual salary
While the 30% rule for housing costs very much applies if you’re buying a house, there’s another rule of thumb you can use to keep your home-buying within reasonable and affordable limits.
Multiply your annual income by three. That’s the top price you should aim to pay for a house to maintain flexibility and affordability when you buy a place.
Again, there are situations where this may leave you literally zero options, and then it becomes a discussion of priorities—but if we’re strictly talking about ways to make key financial decisions in an optimal way so you can save more money, this is a strong rule to follow.
3. Buy “less” car
If you’ve read many financial blogs, you’ll know that the most common advice when it comes to cars is to buy used and keep the car as long as humanly possible—and that some people take a really hard line about this.
However, there are plenty of ways to optimize your car spending to save a huge amount of money that don’t necessarily involve buying used, although it is of course a fantastic option. And no matter which strategy you use, being smart about your car spending by buying “less” car can save you over $100,000 over your lifetime.
Buy less frequently
Whether you buy new or used, keeping your car for longer can have a big impact on your financial life.
Let’s say you buy a car, new or used, for $25,000 every five years for the 50 years that you drive a car in your lifetime. That’s $250,000 you’ve spent on cars in your life. Sure, it’s still less than one ultra-luxury car, but it’s not nothing.
If instead, you opted to keep each car for an extra three years, and got 8 years out of each car, you’d spend (around) $156,250—saving $93,750 in the process. If you kept each car for 10 years, you’d save $125,000 even.
Buy a lower-priced car
The same logic applies to buying a cheaper car when you do buy one. If instead of buying a $25,000 car, you spent $15,000 on your car (which you can often do by buying a slightly-used model of the same car) and you still bought one every 5 years, you’d save $100,000.
And yes, you can definitely stack these two tactics to get the personal finance gold star of buying a cheaper car, less frequently, but the point is you don’t actually have to. Both of these techniques on their own can deliver powerful savings over your lifetime.
4. Start investing, and use low-cost options
By getting your investment fees at or under 1%, you’re already ahead of the game on the scale of Canadian investors, since many traditional mutual funds charge over 2% in management fees. Luckily, there are plenty of easy ways to do that these days—yes, even if you’re a beginner.
There are roboadvisors like Wealthsimple*, where I stash most of my retirement savings, which charges a 0.5% management fee on investments under $100,000 (and you can get your first $10,000 managed free for a year by signing up through this link). There are similar options available at big banks these days too, with both RBC InvestEase and BMO SmartFolio offering options that will build you a full portfolio for well under 1%. Plu, for those banking with Tangerine* like me, they’ve had a simple, easy-to-access investment fund available for 1.07% for a long time.
Oh and why should you invest in the first place? Well, as a quick example, let’s say you save $500 a month for retirement for 35 years. If you stashed your money in a plain old bank account, you’d end up with $210,000. If instead you invested that money every month, and earned 5% after fees and inflation, you’d end your 35 year investing career with $568,046.21 instead.
And since you kept your fees at least a percentage point lower over that time, you’re $111,180.74 ahead of the game—with a one-percentage-point increase in fees, you’d have only ended up with $456,865.47. And that’s how investing, combined with learning about lower-fee options, can save you a ton of money.
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5. Earn more money
“Oh sure, Des, I’ll just earn more money,” you’re probably thinking sarcastically right about now. But remember, I didn’t say this was a list of easy tips! And on the scale of high-impact financial activities, earning more is one of the most powerful options available.
There are many ways you can earn more money that are directly in your control—more than you think, even if they may not lead to an immediate jump in income. Your main focus should be on growing your career and the impact you can have at your job or in your business, which over time will lead to an increase in income.
Here are just a few ways you can do that:
- Level up your negotiation skills. You’ll be able to put them to use both at your full-time job and in any side hustle or business pricing conversations you have, both of which can earn you more money.
- Learn how to ask for a raise effectively. No, it’s not just about walking in and asking for more money (although it does take courage no matter what). There are strategies you can use to ask for a raise and actually get it—read up on them and practice before you implement them at work.
- Do more networking. If there’s one thing I know to be true, it’s that you really never know where your next big career opportunity is going to come from. Put yourself out there by going to events, taking informational interviews, connecting with peers in the industry, or even building an online platform.
- Look up your dream job posting, and commit to learning a skill needed for it. Many of us won’t work in the same company for our whole careers, which means there’s no set roadmap to get to the next three or four promotions. To create it for yourself, make a habit of reading job descriptions and identify the skills you don’t yet have for your dream job—then learn them.
- Build a business or a side hustle. This is the obvious advice everyone gives to earn more money quickly, but building income streams outside of your day job is one of the fastest ways to give yourself a raise and earn more money to save towards your goals.
- Apply for new jobs—even if you’re not 100% qualified yet. Typically, women are even more hesitant than men to submit an application for a job when they don’t check every requirement on the posting. I’ve literally emailed a hiring manager back—twice in my career—saying “Thanks, but I don’t meet this one requirement.” Both times, they had me in mind for the role already, and I got the job despite my blatant hesitation! The lesson we should all learn here is that if you’re only missing one or two lines in the entire job posting, you’re a great fit and should apply, even if it feels like a stretch.
- Attend a conference in your field. If you can swing it, attending a conference is a great way to do a lot of networking and learning in a short time, and the connections will stay with you long after the conference is done.
Do the hard work to save a lot more money
While some of these tips are ones that require knowledge to implement, more often than not they’re hard to do because they require managing your emotions around money—from thinking that you need or deserve the fancier car or house, to being scared to put yourself out there and ask for a deserved raise. Those are hard emotions to work through, especially in the heat of decision-making, but it’s work well worth doing since each of these tips can conservatively help you save well over six-figures throughout your career.
And hey, if you save $100,000 by buying a cheaper house, maybe you don’t need to worry about your lattes, you know?