Save More Money Fast: 6 Simple Steps – Budget Ontrack (2024)

In the pursuit of financial well-being, the age-old wisdom of “paying yourself first” stands as enduring advice. Imagine not just understanding this principle but also implementing it effortlessly to fast-track your journey to saving more money. This article covers six super-simple steps to save more money fast. These steps not only amplify your savings but are also remarkably easy to integrate into your daily life.

Let’s turn the goal of saving more money from a fleeting thought into a reality – one step at a time!

Before diving into the six steps, we’ll go over some basics of saving, starting with what “pay yourself first” means. Then we will explore a couple of examples to make it more understandable.

Pay yourself first

“Pay yourself first” is a phrase coined in the 1920s by George S. Clason, bestselling author of “The Richest Man in Babylon” (Link*). This phrase is advocated by many financial professionals and is considered one of the golden rules for financial success.

Paying yourself first involves setting aside a certain portion of your after-tax pay as savings before you spend money on discretionary purchases.

The idea behind this approach is to pay for essential expenses, such as rent, food, bills and debt. These expenses are essentially non-negotiable. Stop paying rent and you’ll be evicted. Give up buying food and, well, you know what will happen! Stop paying for electricity and your supply will be cut off.

After the essential expenses (needs) have been taken care of, set aside a portion of your money for saving. This is the “pay yourself first” part. The savings can be used to go towards investments, a large purchase, or to build an emergency fund.

The remaining money you have left over can then be used for discretionary purchases (wants). Dining out, watching a movie, paying for streaming services. The list goes on.

To make this strategy easier to manage, transfer a portion of your after-tax pay to another bank account or towards investments such as the stock market, property, or a retirement fund. If you automate the transfers soon after you receive your paycheck, it becomes “out of sight” and harder to spend.

Let’s check out some examples before we dive into the six simple steps!

The 50/30/20 rule

The 50/30/20 rule involves keeping needs under 50%, limiting wants to 30%, and using the remaining 20% for savings, investing, and paying off additional debt. Group the needs and wants in your budget, then calculate their totals and divide the totals by the after-tax income to calculate their percentages. See below for a step-by-step procedure.

The 70/20/10 rule

The 70/20/10 rule is similar, in that the recommendation is to split your take-home pay into three “buckets”. The difference between the 70/20/10 rule and the 50/30/20 rule is that the 70/20/10 rule allocates 70% for spending on needs and wants, including paying off debt, 20% for investing, and 10% for saving.

Problems with the 50/30/20 (and similar) rules

Whilst the 50/30/20 and 70/20/10 rules are easy to understand and implement and are useful for many people, they can represent an unrealistic split between needs, wants, savings, and investments. This becomes more evident at the extremes of income.

For example, if a person earns $25,000 per year, the 50/30/20 rule will split this income into $12,500 for needs, $7,500 for wants, and $5,000 for savings. It is likely that needs will exceed $12,500 per year. A more realistic split might be to allocate more to needs and less to the others for low-income earners, such as 70/20/10.

Likewise, if a high-income person earns $200,000 per year, the 50/30/20 rule will result in a split of $100,000 for needs, $60,000 for wants, and $40,000 for savings. It is unlikely that person will require $100,000 for needs. A more realistic split, in this case, would reduce the needs and increase the others, such as 40/30/30, or even 30/30/40.

The main benefit of paying yourself first is to ensure that you set aside a realistic portion of your take-home pay for savings, investments, and other financial goals. The amount you choose for each category should be based on your individual financial situation. Visiting a trusted financial adviser can help you decide on the right split for you. Review and update these proportions each time your income, expenses, or financial goals change significantly.

Now that we’ve explored a couple of common approaches to splitting your pay into different buckets, let’s get straight into the 6 steps …

The 6 simple steps to save more money fast

The following instructions guide you through the process of “paying yourself first” in easy-to-understand steps. Remember, using a spreadsheet-based budget will make executing these steps more simple and straightforward. The list below assumes you are splitting your after-tax income into the 50/30/20 proportions. Change these proportions to suit your individual needs.

1. Determine your after-tax income

Your after-tax income is the amount of income you receive each pay cycle. If you receive more than one stream of income, list all of them. If you are self-employed, the total income will be the gross income minus all business expenses such as tax, equipment costs, travel costs, advertising, etc.

2. Create a basic personal budget

Create a basic personal budget if you haven’t already, and enter all known income and expenses.

Categorise each of the expense items into:

• Needs: expenses such as food and groceries, utility bills, health insurance, essential clothing, minimum debt payments (mortgage, personal loans and credit cards) and other expenses that you can’t forego without impacting health, safety, well-being and credit score. Keep all debt payments separate so that you can effectively manage to pay them off. See the managing debts page for examples.
• Wants: expenses such as extra clothing, cable TV, streaming services and other expenses that are not absolutely essential for your livelihood.
• Goals: comprising longer-term goals such as saving for a holiday, car, investments etc.

Group the expense categories together and total each of them.

3. Calculate the needs portion of your expenses

Calculate the 50% needs portion (or your chosen proportion based on your financial situation). If the total in the “needs” category is more than 50% (or your chosen proportion) of your total after-tax income, look at ways of reducing it. This will usually involve identifying anything that can be placed into a “wants” category such as short-term expenses or long-term goals, without creating excessive inconvenience.

4. Calculate the wants portion of your expenses

Next, find the total of the items in the “wants” category. Try and keep these “wants expenses” to around 30% (or your chosen proportion) of your total after-tax income. If it is significantly above this, consider cutting back on some of them. Ask whether you really need two or three separate streaming services, or whether you need the latest mobile phone on that high-data plan. Do you need expensive clothing, or can you get something a little cheaper that still looks good? It’s a good idea to look around for alternative but cheaper options.

5. The remaining portion of your after-tax income

The remaining portion of your after-tax income can then be used to pay off extra debt such as a mortgage, personal loan, and credit card payments, and to save for long-term goals such as a holiday, investments, or creating/adding to a retirement fund. The choice is yours!

6. Open extra bank accounts and automate the transfers

Take the process of paying yourself first to the next level by opening extra bank accounts and automating the transfers. Firstly, check your bank account that your pay is deposited. This account, usually called a transaction account, often comes with a card (debit or credit card) for everyday purchases. Then open “savings” accounts under the main transaction account for transferring money to and from the main account. The savings accounts do not generally have a card associated with them, which makes it harder to impulse spend from these accounts. Which is what you want! Give each account a nickname, for example: “Bills”, “Holiday”, “Savings” etc. Finally, set up periodic transfers from the main account to the other accounts to automate this process.

Scott Pape, the best-selling author of “The Barefoot Investor” (Link*), recommends setting up accounts (his three-bucket strategy) called “Blow” for daily expenses and occasional splurges and other wants, “Mojo” for safety money and unexpected expenses, and “Grow” to build long term wealth and financial security. What you choose to call the accounts is up to you. The general recommendation is to have at least three separate savings accounts for different financial purposes.

When choosing savings accounts, look for the following features:

• no fees (or very low fees)
• a relatively high interest rate
• the capability of earning a bonus interest rate

High-interest rate accounts ensure the value of your money isn’t degraded by inflation. They are also a source of passive income. Use comparison websites to find online-only accounts that tick all of these boxes. Some comparison websites include (these links open in a new browser tab/window):

• ratecity.com.au, finder.com.au and canstar.com.au in Australia
• ratehub.ca in Canada
• china.deposits.org in China
• cashoverflow.in in India
• finance.co.nz in New Zealand
• money.co.uk in the UK
• bankrate.com in the US

Search for “comparison high-interest savings accounts” to find more comparison sites in your country.

Final thoughts

The 6 simple steps to save more money fast should now be clear. How you split your money will depend on your specific circ*mstances, such as your income, living expenses and debt. If you are currently struggling to save money, the steps above should help identify where you could improve.

Are there other steps you use to save money quickly? Leave a comment below!

More resources on how to save more money

Remember to choose your preferred format (paperback, hard cover, digital etc.) before making a purchase!

• The Richest Man in Babylon by George S. Clason Link*
• Think and Grow Rich by Napoleon Hill Link*
• The Barefoot Investor: The Only Money Guide You’ll Ever Need by Scott Pape Link*
• Featured books on saving strategies Link*

(*) This site contains affiliate links to products. We may receive a commission for purchases made through these links at no extra cost to you. Please read our affiliate links disclosure for more information.

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