With the ever-rising cost of living, it can be hard to live a healthy and happy lifestyle without dipping into your savings. In this blog post, you’ll learn 7 tips on how to save an extra $5,000 per year. You’ll also learn how to avoid common mistakes that can cost you a month’s salary.
If you’ve decided to start saving money, you don’t have to overhaul your lifestyle; instead, you can just make a few minor changes. While it may seem like a lot, these changes really can save you a lot of money over time. For example, cutting out the daily latte habit will save you $5,000 per year. While that may seem impossible, if you reduce your spending by just 20%, you would save $1,000 per year.
There are a number of ways to get your hands on an extra $5,000 per year. Think about what you could do and how much better your life would be with the extra cash. Could you pay off a debt or two, or a credit card, or could you buy a new car, or go on a family holiday? You could! No matter what you decide to do, there are ways to save money in your every day life, and we are here to show you how.
A few months ago, my friend Ellie and I set up a new personal budget and committed to saving more by setting aside an extra $5,000 a year. In this blog, we’d like to explain how we did it and give you our best tips for saving money. Ellie and I are working on her budget at the coffee house (for the Covid!). Ellie has been married to Ben for just over three years. Together, they have a household income of just over $60,000. They rent out their house and own two cars. Ellie told me they only saved about $2,000 last year. It didn’t seem like much to us because it ended up being less than 5% of their total income. They both wanted to save more money. Over the past few weeks, we’ve read many tips on how to save money and work on our budget. This allowed us to develop plans and strategies for simple changes to save $7,000 this year. That’s over $5,000 more than last year. Let’s see how they did it!
Performance: $450 saved
We calculated that they spend an average of $9.80 on lunch and dinner for two ($7,200 groceries and takeout / 2 meals, 365 days a year). We both agreed it was too high. With some of these tips, it’s very easy to lower your average grocery bill:
- Not eating at home twice a month (that saves $240/year).
- Make it a rule to eat out at a very cheap restaurant once a week. For Ellie and Ben, it was a frozen pizza with carrots and hummus or just a pizza, about $6 for both (a savings of $150 a year).
- Make a few small changes, like not ordering soda, snacks or desserts when you leave the house (a $100 savings per year).
We estimate that Ellie and Ben will save at least $450 a year by making these small changes – without having to stop eating out!
Housing: $2,600 savings
The shelter was one of the places where Ellie and Ben could make a big difference. They spent $18,600 a year on rent for the mansion ($1550 a month). But there was a lot more room in the house than they really needed. This is not uncommon: Studies show that 40% of people do not use part of their home regularly! They decided that the extra money was a higher priority than the extra space. At the end of the lease, they moved into a nice two-bedroom apartment with a balcony. Your new rent is $1,325 per month, that’s a savings of over $2,600 per year (not counting the savings from lower utilities!)
Operating costs and energy: $200 saved
We looked at Ally’s electric bills and found that they paid $1,220 for electricity last year. We have developed some simple strategies to reduce this number. Simple measures like using LED bulbs and turning off lights are a good start. According to the Department of Energy’s Energy Savers website, you can save up to 10% a year on your heating and cooling costs simply by setting your thermostat differently. In the winter, you can reduce your heating costs by keeping your home at 68 degrees during the day and at a lower temperature while you sleep. Give your air conditioner a rest in the summer when you’re out and about and only rely on it when you’re at home (set the temperature to 78 degrees when most people are still very comfortable in light summer clothes). If you’re not home all day, you can change the temperature by 7-10 degrees, which can save you 10% a year on your energy bills. Also read our article on reducing energy costs:
Entertainment – $660 in savings
Ellie and Ben spent $2,400 a year on entertainment, but they didn’t want to make any major changes to that part of their budget. Fun is important! We looked at their list of streaming subscriptions and found that the various services overlap. Ally canceled the least used device, which costs $20 per month, and saved $240. This represents up to 10% of their entertainment budget! They also realized that they were not using their indoor tennis membership ($35 per month). Ally has resigned her membership. They love tennis, but have found free outdoor courts to use when the weather is nice. We saved an extra $420 without giving up a fun activity! Also read our free article on entertainment:
Transport – no savings
Ellie and Ben spent over $9,000 a year on two cars. But they both use their cars to go to work. So we decided that the cost of maintaining the cars would be offset by the importance of the cars to Ben and Ellie.
Ellie is a fashionista and loves to express herself with clothes. That’s why we’ve found a few ways to save money without sacrificing their sense of style. Buying second-hand clothing has become easier with the rise of apps like ThredUp and Poshmark, where you can find stylish items at a huge discount. Sometimes you can even find new clothes with their tags! Clothing offered in these applications may be discounted up to 50% off the original retail price. We calculated that Ellie could save 25% on her usual clothing budget just by buying a few second-hand items.
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Healthcare – $300
Ellie and Ben’s biggest health expense is their insurance. They are covered by an employer-sponsored plan and their monthly premium is $250 per month for the PPO plan. By switching to the cheaper HMO rate, they saved $25 per month. That’s $300 a year! We heard about this possibility from the Kaiser Family Foundation (see link).
Other expenses – $550
Ellie admitted that she and Ben have a habit of impulsively ordering things online and then regretting the money spent. She agrees that they should stop and talk to each other before pressing the Add to Cart button. They calculated that taking a minute to discuss the need for an item could save them $500 a year by keeping them from making reckless purchases.
Where does this lead? More than $5,000 in additional savings
If you make all the changes mentioned in this article – most of which are nothing more than small changes in your habits –, you can save another $5,000 a year on a comparable household budget and living situation . Best of all, Ben and Ellie have not made any major lifestyle changes, with the possible exception of the decision to move to a slightly smaller (but still spacious) house/apartment. In most cases, by looking at the big picture, Ellie can plan small changes that don’t seem like big sacrifices. The biggest change will be that she and Ben suddenly have $5,000 more in savings for this year. If they invest that money over the next 25 years, it will be a significant windfall for them. Assuming the average stock price is 7% during that period, that means they could have $313,000! (according to Bankrate’s savings calculator).
The question is what is most important to you?
Is saving money the most important thing when setting priorities? What is your biggest goal? Dinner for the third time this week? Availability of more TV options ? Or do you prefer to have an emergency fund and save for retirement? Do you want to repay the debt? All options are good, as long as you make informed decisions. Ellie has learned to manage her budget better so she can focus on her priorities, including saving. Read more to save money: Also check out our tips for creating a new budget for your family: free printables, Excel budget templates, and personal budget examples.
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It doesn’t take a lot of effort to save $5,000 per year. Don’t believe me? Check out these money-saving tips. Don’t know where to start? Read on to learn how to save money on your phone bill, your cable bill, your internet bill, your car insurance bill, your home insurance bill, your utility bills, and even your taxes!. Read more about how to save $5,000 in a year chart and let us know what you think.
Frequently Asked Questions
How can I save $5000 fast?
Saving money can be a challenge, especially if you are trying to save $5000. One of the main reasons people have trouble saving is because they do not have the money to save, which makes it hard to get started. If you do not have money to save, you can find ways to save $5000 by cutting back on spending and finding ways to make more money. Below is a list of different ways you can save money. The economy can be a cruel place, and some folks just can’t make ends meet with a full-time job and a few side hustles. If this is you, then you want to cut costs and save money anywhere you can. The $5000 Challenge is a great way to save a lot of money fast, and it doesn’t require any drastic sacrifices. Here are 7 tips to help you reach your goal.
How can I save 5000 a year biweekly?
Everyone needs money. We need it to buy things that we want and need, such as food, clothes and electronics. Unfortunately, few of us have enough money to meet all of our needs. You might be wondering, “How can I save money?”. There are many ways to save money, but they’re not always easy. Some require you to change your behavior and others require you to make sacrifices. After earning a steady $50,000 per year for eighteen years, you decide to retire. It’s a nice, round number, and you figure you’ll have more than enough to cover your expenses for the rest of your life. Even playing it safe, you figure you can live a nice, comfortable life with $50,000 a year. But now that you’re retired, you’re not sure what to do with your time. That’s when you start to realize that with all the new expenses you have, you’re now only saving about $1,000 a month. That’s not nearly enough to cover your expenses, since you have to pay for food, housing, health care, transportation, utilities, and more. How are you
How can I save 5000 in 6 months with envelopes?
You can start saving small amounts of money by using envelopes. Start by putting $1 or $2 inside each envelope. When you have empty envelopes, get more and repeat. When you have some money left, or you’ve finished saving for a certain item, buy it. This method of saving is especially useful for saving for large purchases, like a car or a television. How many times have you been given a cash gift or bonus and thought, “This money would really come in handy right now. But I’ll just save it for later and put it towards something I really need.” And then you let that little bit of cash just sit in your savings account for months or years. Here’s the secret: you’re not saving. You’re just deferring spending. And because there are bills to be paid, you end up using that money. And then where did it go?
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