How We Save 25% of Our Income To Prepare For a Big Change

In my previous article, I mentioned that I have a big adventure ahead of me in about two months from now. It may sound funny that I call it an adventure, as it’s rather normal for one parent to stay at home taking care of small children while the other works. In fact, that’s exactly what my wife done for the past three and a half years — plus she has done a great job at it and never called it an adventure or made a big fuss out of all of it.

Sure, changing your routines and switching from office work to playing with kids all day long is always an adventure. But still a rather common adventure.

So, why do I call it an adventure then?

First of all, the habit of making my actions sound bigger than they really are is part of my DNA. It could be a common trait to other men too, but I can only speak on my own behalf…

But there is more to it. My wife is still a university student. The job she is starting is not yet a regular job but a training period that is part of her studies. Luckily for us, she will be getting paid for the work, but not as much as I have been making these past years. So, in terms of money, this is not what you would call a safe decision.

That’s why when my wife and I finally realized that this crazy idea we had been talking about for years was going to be reality, it was clear that it meant stretching pennies. We had virtually no savings, so we had to get rather aggressive about it — and went from spending every penny we make to saving 25% of it pretty much overnight.

How did we do it?

No, we didn’t start making more money (that is something I am thinking of diving into during the upcoming months, however). Instead, we took a careful look at our financials and got conscious of how we were using the money we made. I haven’t read Man vs. Debt’s book Unautomate Your Finances, but based on his blog, I have the impression that my approach is quite close to what he advocates.

The guiding principle we try to follow is quite simply:

Spend less than you earn

In case you would like to get it in more detail, here are 9 small changes that have helped us to successfully save 25% of our rather modest income for many months:

  1. I started tracking our purchases very closely. Nowadays, I login to my internet banking software once every day and go through the balances to see where the money is going. I then add the numbers to a spreadsheet stored in Google Docs categorizing every event to one of my predefined categories. This takes a few minutes every day, but I have noticed that knowing exactly how much money we have makes me feel a lot more relaxed, so it’s definitely worth the extra effort.
  2. Based on the previous months’ activity, I create plans for upcoming months. Then we work hard to stay within these limits, making sure we don’t spend more than we earn (minus what we want to save, which leads me to the next point).
  3. I believe it was in Robert Kiyosaki’s Rich Dad Poor Dad, where I first read this idea (not a book I really recommend otherwise) that you should always pay yourself first. In order to make this work, you have to know how much money you really need for living (which is why you need to start from the first two steps and tune your savings based on them). But once you do, I believe the only way to successfully save is to make it a routine. As soon as my monthly salary hits my bank account, I set aside the money that we have decided to save every month. After that, we live with the remaining money, making choices as if that was all we got.
  4. Frugality can be a lot of fun. To be honest, saving money and coming up with clever ways to avoid buying new things has become sort of a hobby to me and my wife. It may sound a bit geeky, but when you make a good picnic lunch and thus avoid eating out, it makes you feel much more alive than just going with the flow and using money to handle every situation. The best things in life are free. As an added bonus, our three-year-old is already starting to realize that purchases come with a price tag.
  5. As an overall philosophy, my interest in minimalism is helping us a lot in this saving endeavor. When you think carefully about what you really need, you will soon notice that you don’t need that much — which is great for saving: if you don’t feel like buying stuff, it’s much easier to not spend money!
  6. We try to do our grocery shopping in batches, planning one week’s worth of lunch menus in advance. Equipped with a clear shopping list, you are much less likely to do impulse purchases and only bring home the ingredients that you really need.
  7. The importance of the step above gets magnified by the fact that I have stopped buying lunch at work. We always prepare enough food for the whole family in advance, and I take my part of it with me to work. If I was to single out one area in which we have saved the most, this would probably be it.
  8. Speaking of work, I was able to make another easy work-related cut of 80 euros (112 USD according to Google) by stopping to use the bus to get to work and starting to use my bike instead. Plus I get a free two hour workout (which also works as silent time to just myself) with it four days a week!
  9. Every now and then, we still get the urge to do some bigger purchases. For that, we have adopted the idea of the 30-day shopping list: every purchase that is worth roughly 30 euros or more gets listed on that list, and then have to wait for 30 days before deciding whether we really want the thing or not. Sometimes we do, quite often we don’t.

What remains to be seen is how well this approach scales when it’s time to cut the income. Ideally, we wouldn’t need to touch our savings much but could squeeze even more out of every penny — maybe supplementing the income with online business ventures, somewhat along the lines of what Corbett Barr and Chris Guillebeau explain in their guides. But it’s a part of the adventure to see how it turns out.

What I have learned, and hope you too can take away from all of this is that if you think you can’t possibly save, it usually means that you just haven’t put your mind to it and really tried it seriously. If you really are poor and don’t have money even for the basic necessities, that’s a different story. But if you are employed, live in a “first world” country, and have zero savings, you may want to give this a shot. Try it for a few months, and before you notice, you will have a nice safety net on your bank account.

The only thing I regret is that we didn’t start saving earlier.

6 thoughts on “How We Save 25% of Our Income To Prepare For a Big Change”

  1. Thanks for the post. I think one thing many people find is in taking steps to save money they actually are happier. Often eliminating spending, eliminates complexity that really didn’t make us happy, we just got in the habit and then it kept going. I do try to spend money only on things that I really want but I don’t find myself frustrated at missing out hardly ever. And the avoidance of money worries is great.

    Simplicity brings its own rewards.

    I think brining a lunch to work is sensible. I just don’t want to. So I don’t. Just because you try to save money doesn’t mean you have to do the things you don’t want to.

    1. You are completely right, John! Eliminating or minimizing spending makes life easier instead of harder. So often we buy things to solve some problems, but in the end the purchase just creates more complexity in itself.

      About bringing lunch to work, it’s something that works for me, but depending on your line of work, for some people it’s better to save from something else instead… I would imagine that for a manager or a sales person it would be better to spend the lunch time with other people, and that often involves eating out.

  2. At least Nordea actually gives you the option to download all the data from your account in a spreadsheet format. You should check if your bank provides that as well.

    1. I don’t think Sampo does that… It could be one more good reason for switching banks, though :)

      However, for now, I think it’s a good thing that I need to manually check the stats and think about them as it keeps me thinking about my finances actively.

  3. nice post, thx Jarkko! I was happy to notice that our family too already implements many of the principles you listed.

    Maybe we should try to share some economizing tips. I think I need to write a post myself about how we try to economize. And I could ask an other friend to do the same.

    Mostly I feel that economizing is not about saving money. It’s more about saving energy and time for more important stuff. Like family. :)

    1. Awesome, Satu! After reading the comments and your post about saving, I realized that this really is a common thread in many families’s life.

      That’s a good point: saving money means saving energy. I also believe saving money means freedom.

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