How to Save Money – 4 Smart Savings Tips


Saving money doesn’t start and end with sacrifice, not if you’re smart.

Did you know?

Savings, according to Keynesian economics, consists of the amount left over when the cost of a person’s consumer expenditure is subtracted from the amount of disposable income he earns in a given period of time.


How to Save Money

I’m not here to tell you to cancel your Netflix subscription, or that spaghetti and tomato sauce is actually a tasty meal.

Follow, in order, my four smart savings tips below and you’ll be on your way to early retirement.  And don’t cheat because like any good recipe, you need all the ingredients.

How to Save - Blog Picture 1

1. Start with Your Needs

This is the most important piece of advice I am going to give you, so listen in.

Before devising any savings plan, think first about your needs.  Let’s explore this a little more deeply.

There are six basic human needs that drive our behaviour:

  1. Certainty,
  2. Uncertainty,
  3. Significance,
  4. Love and connection,
  5. Growth and
  6. Contribution.

We each prioritise these differently and this will determine the direction of our life.

Work out which of these you value most.  If you are having trouble, think about your life and your actions.  It is not about what you think is right or want your needs to be, it is what your actions say they are.

How This Works for Me:

My highest priority needs are love & connection and growth.  These play out in my life as follows:

  • Love & connection: I spend an abnormal amount of time (according to my fiancée *smiley face*) with family and friends.

This means my budget leaves a little more space for ‘entertainment’ expenses than perhaps others would.  For example, I love live music and allocate $100 per month to pay for tickets.  On the flipside, because I’m always on the go, I can save on a Netflix subscription.

  • Growth: If I am not growing I get incredibly restless. So growth is extremely important to my sense of fulfillment.

This played out in a financial sense a couple of years ago.  To build the capital needed to start my own business (cold brew coffee) I re-jigged my budget so that I could transfer $200 per month to a ‘personal growth’ account.

These examples demonstrate how prioritising your needs can help craft your budget without feeling like you are sacrificing the important things.  Now it’s your turn.

Word of warning: Be careful not to confuse needs with wants.

How did you go?

Now that you’ve discovered something new about yourself, lets get back to the savings blueprint.

At step number two, make sure you factor in the cost of satisfying your highest priority needs.  That way you won’t ever feel like you’re missing out on what is important to you.

How to Save - Blog Picture 2

2. Craft a Budget

The next step is working out what your lifestyle is going to cost – create a budget.

There are a number of excellent budgeting tools available online but I’m a sucker for an excel spreadsheet.  This gives you complete control over your expenditure categories.

Do this once and make it count.  I promise that if you build an accurate budget it will only need revisiting every now and again, or if an unexpected (or expected) life event occurs.  Ahem, kids, an engagement etc.

Let’s take a sneak peak at my personal budget so you get a feel for the task at hand.  For context, our family consists of me, my fiancée and Pepsi (the cat).

Here is My Budget
Category Examples Amount ($/ month)
House Mortgage/ Rent, Strata Fees, Rates, Water, Electricity, Repairs & Maintenance 3,500
*Car Insurance, Registration, Licence Fee, Fuel, Servicing 300
Health/ Personal Insurance, Doctor, Dentist, Optical, Pharmacy, Social Sport, Gym Memberships, Haircuts, Dry Cleaning, Clothes 650
Food & Drink Groceries, Eating Out, Coffee, Alcohol 1,200
Transport Public Transport, Taxis, Uber, Bikes 100
Technology Phone, iPad, Wifi, Subscriptions 150
Pets Vet, Food, Medication 60
Entertainment Tickets & Events, Gadgets 200
Travel 200
Education Study, Books 40
Other Gifts, Charity 200
Unallocated cash 500
Total 7,100

*We made a financial decision to live with one car.

Feel free to use the expenditure categories listed in my example above to start your own budget.  Note that creating a budget that aligns with your pay cycle (e.g. weekly, fortnightly, monthly) makes it easier to automate your savings, hold on for tip four.  And don’t forget about prioritising those needs.

Next, subtract the cost of your lifestyle from your income.  And voila!  You have a positive number right?  If not you might need to sharpen your pencil (trim back first on wants – focus on a couple of high cost habits) or think about generating some additional income.

Remember this amount, because it is your magic savings number.

Now it is time to make a commitment to you.  You already take care of the Bank Manager, your local café, perhaps even a pet and don’t forget Netflix.

Take your magic savings number and save it.  No ifs or buts.

If the amount is roughly 10% of your salary then be proud of yourself!  If not, don’t stress, we’ll fix this ‘tomorrow’.  Read on to find out how.

3. You get a bonus, or a raise

This tip is powerful yet so simple.

If you receive any unexpected or additional income, perhaps a bonus or a raise, save it!  You’ve already established that you have sufficient income to cover your lifestyle.  And most importantly, you’ve actually lived comfortably for a period of time within the parameters you set for yourself.

This means you won’t miss those extra dollars (the research supports this, see Thaler & Benartzi 2004) and the effect on your retirement stash will be astronomical.

If you have a spare 17 minutes, this TED talk is a fascinating look at the behavioural challenges of saving and how these can be turned into opportunities…

: If the amount you are saving as a percentage of your income is lower than you would like (less than 10% for example), this is the easiest and most painless way to invest a little more in you.

4. Automation

Last but not least is the concept of automation.

Without automation saving is going to require a stack of willpower, and to be frank, you’re destined to fail.  How many times in the past have you promised yourself something and not done it?  Think your New Year’s resolutions, that gym membership etc.

So take willpower out of the equation and automate.  It’s called paying yourself first!

There are a number of ways you can achieve this.

  • To start with I recommend setting up a direct debit from your salary account (on pay day) to your ‘investment account’ – the transfer amount is initially your magic savings number.
  • Your investment account could be anything – your superfund, an acorns ETF account, or your mortgage.

Now sit back, check in every now & then and watch your retirement get closer.

For some timeless wisdom regarding automation, and a step-by-step guide read this feature on Tim Ferriss’ blog…

What to invest in is a topic for another blog post.

There are a number written by The Wealth Guy right under your nose so check these out.


  • Understand you – establish your most important needs first
  • Craft a budget that factors in these needs and you won’t feel like your sacrificing
  • The difference between your income and expenses is your magic savings number now… Save 100% (or close to) of any unexpected or additional income
  • Pay yourself first using automation!
 Aaron Ellwood - Bio
The information on this blog and website is of a general nature only. It does not take into account your individual financial situation, objectives or needs. You should consider your own financial position and requirements before making a decision. We recommend you consult a licensed financial adviser in order to assist you with this.


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