For some people, saving money is an almost impossible task and a taboo subject. When I tell people I’ve been able to save money no matter where I lived, including expensive places like Dubai, I get a lot of incredulous looks. Well, it’s really not that hard, provided you have a couple numbers in mind and a helpful mind frame.
Now look, I know a lot of people are in debt, or are barely squeaking by living pay check to pay check. If you don’t have a good handle on the Money Triangle for whatever reason, that’s ok. I don’t judge, everyone is at different parts on their journey. But even if you’re in debt, this system can help you get a hold of your spending and saving, and I actually find it fun.
(this will be done in Dirhams, which is 3.67 AED = $1 USD)
Step 1: Pay off debts with high interest rates
You don’t go into positive territory until you get out of debt. This is especially true if your debt has an interest rate over 6%, because your investments won’t cover that. You don’t want compound interest to work against you, you want it to work for you!
There are lots of ways to pay off debt, but for me, I did it with tutoring, teaching photography to adults, corporate photography gigs, and playing in an orchestra outside of school. All this was in Bahrain, but similar opportunities are all around as well if you look.
Sadly, sacrifices often have to be made to get out of debt. If that means you tutor more hours, or figure out another side hustle that might not be so much fun, you just need to do it.
It’s probably more fun than being in debt and not being able to retire because you don’t have any money to do so.
The good news is that even if you’re in debt, these next steps will help you have the money to get out of it.
Step 2: Figure out the number you need to save (or pay off) per year.
For some people, that may come from the compound interest calculator that Andrew Hallam uses. If you want to get to a certain number to retire, a lot depends on your savings rate.
For me, I always liked saving $20,000 per year. It seemed like a high target, but one I could usually reach. If you still have debt, think about paying off your debt at the rate of $20,000 per year, it would probably make pretty short work of your debt.
Your situation is probably different than mine. You may have kids, or pets, or a Persian Rug habit, whatever floats your boat. But until you know this number, you can’t really figure out the rest.
Take 5 minutes to think about this, then write it down.
Step 3: How many months will it take to get to your savings goal?
To be more realistic, I feel like I can realistically save money 9 months out of the year. 2 months are for summer, and I will probably need to spend more. The other month is for the Winter Break, and I like to travel then as well. I didn’t become an international teacher to sit around all the time.
So, if I know my total savings goal, and I know how many months I will be realistically able to save money, I just divide the amount of money by the number of months, and I get how much I need to save per savings month.
For me, that would be $20,000/9 = $2,222 per month, or 8154 AED.
Step 4: Then Add The Recurring Bills to that number to get your Total Expenses per “savings” month
I add any fixed bills I know I have. Like my car payment, cell phone, internet, utilities, etc. Let’s say that’s another 1500 AED per month.
This is my final “Expenses per month”. Subtract that from your monthly salary.
That number is how much you can spend per month. Rocket science, I know, but I promise, I’m getting to the more interesting part!
Let’s say that what you have left is 6000 AED per month to spend on everything else, like groceries, going out to eat, entertainment, etc.
Step 5: Now the fun part! (or maybe I’m just weird)
Give yourself a daily allowance and make it a bit of a game.
For me, with 6000 AED a month to spend on these sort of daily expenses, I give myself 150 AED on a weekday and 270 AED on Thursday, Friday, and Saturday. That adds up to around 1400 AED a week in discretionary spending. 4 weeks of that, plus or minus a few days, gets me right around 6000 AED in spending.
But every day I track my expenses and see if I can come in under that daily target. It’s fine if I’m a bit above, but I like it a lot more when I’m under. I find that 150 AED a day for my own spending is fine. 270 AED on the weekends also seems fair, and I rarely go over, but if I have a day where I spend a lot more, it’s not the end of the world, as long as I’ve had a few other days that are under the target to balance it out.
It’s sort of like a budget, but easier and more flexible
Once I figure out my daily spending targets, I get to choose how to spend that money. If I want to, I can cook a big batch of food on Saturday and eat it through the week, and use my discretionary funds for going to fancy brunches and karaoke. Or I can go out every night of the week to reasonable restaurants but not go crazy partying.
Just hit the targets, and if you find saving money fun and fulfilling, like I do (again, I’m probably the weird one), you’ll have lots of days you’re under the target.
But that’s crazy talk! I don’t make enough money for those numbers!
So you can adjust in a couple ways.
First, you can lower your savings goal. If $20,000 a year is too much for you to handle, try $15000. But you want your savings rate to be as high as you can. If you can save 75% of your salary, conventional wisdom (and math) say you can retire (or achieve financial independence) in 7 years. If you save 50% of your salary, you can retire in about 16 years.
When do you want to retire? Let that help guide your savings goal.
OR if you want to save that sort of percentage, but can’t on this salary, you need a side hustle like tutoring or something else similar (but don’t violate your work visa conditions!).
So let’s do some math!
Savings goal / number of months to save = Savings per month
Income per month – (Savings per month + bills per month) = How much you can spend per month
How much you can spend per month / days in a month = How much you spend per day
Adjust that up a bit for weekend days, and down a bit for week days and you know your daily spending targets for week days and weekends.
Track your spending! Try to be under the daily targets as often as possible.
CONGRATULATIONS! You saved money!
A note on Side Hustles in a modern world
With the advent of smartphones and the gig economy, it can be easier than ever to have a side hustle and not leave your home.
Here’s a site with 100 apps that could help you bring in extra income. Of course, some won’t work if you’re not physically IN the area, but some, like fivrr do: 100 apps to help you with money
This post was originally published on The Happiest Teacher. It was graciously reposted here by the author, blogger, and the Happiest Teacher himself, Zach Holz.