3 ways to stop spending all you earn

Struggling to find money to invest? Paul Summers offers three possible solutions.

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Here at the Fool, we think it’s a great idea to save as much as you realistically can every month… and then invest it into the stock market for the long term.

Thanks to the power of compounding, doing this vastly increases your chances of becoming financially independent earlier in life and/or securing a more comfortable retirement.

The only catch is, you need to get your spending under control first. So here are four ways of doing just that. 

1. Practice patience

Instead of buying something impulsively, why not just make a note to consider purchasing it after a set period instead? This could be a month, a week, or even just 24 hours. If you’re shopping online, set up a wishlist and come back to it later.

This simple action isn’t intended to cut out all the joy in your life. But it does allow you to recognise your spending ‘triggers’ and the breathing space to consider whether you really want, or need, a product.

It also gives you the time to check whether you might be able to get a better price for that ‘special’ something elsewhere. Or perhaps a friend might already have what you want and would be prepared to let you borrow it. They may even want you to take it off their hands for free!

2. Ditch the plastic

Thanks to credit cards and innovations such as Apple Pay, we’re using less cash than we used to. Being able to ‘tap and go’ without having to look through your wallet for notes/change is, of course, very convenient. But it also has the potential of making living below your means that little more difficult, because you’re less likely to track your outgoings. Studies have consistently shown that people become more conservative with their spending when they use real money rather than cards.

The key here is having a plan and sticking to it. Consider your weekly food shop. Why not decide on what meals you will cook in advance, withdraw a set amount from your bank account and then use this (and only this) for your groceries? If you feel comfortable doing so, leave your cards and phone at home. 

3. Pay yourself first

One of the best ways to ensure you’ve got money to invest is to transfer said money over to your Stocks and Shares ISA, or SIPP, as soon as your monthly salary hits your bank account. Better still, set up a direct debit so the process is automated.

In addition to now having cash to put to work in the market, this means you’ll have less to spend from the off (although this does involve you also abiding by the points above). Just to make sure, think about ditching any overdraft facility your bank may offer too.

Another option

If you’ve tried all of the above, have cut back where you can, and still have no money left over, a final option is to find ways of earning more, be it through a promotion or a second income stream. The latter could take many forms. Tutoring someone else on a subject you enjoy, or selling things online are just two examples.

The obvious drawback here, however, is that you need to be even more disciplined to refrain from spending this extra income.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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