'Saving money by spending less' Don't miss the critical step!
‘Saving money by spending less’ is a simple concept, however, in this blog I'll cover a very important part of the process that many people miss. This part of the process can have a very big impact on your kid’s future financial wellbeing.
This blog is the last of a three part series to help parents teach their kids about savings:
Saving money … to make money, i.e. putting money away which earns a return and increases your wealth
Saving money … to spend later, i.e. seeing something you want and saving up the money to buy it in the future
Saving money … by spending less, i.e. finding discounts or a cheaper version of the things you want.
Similar to other blogs in this series, I provide ways to explain the benefits of saving, a game, a story you can read to your kids and, outline how you can reinforce saving money by spending less using pocket money.
Saving money by spending less - the missing part of the process
A lot of people hear friends say “I’m so happy, I just saved £10 in the sales!”.
The issue is most people don’t ‘save’ that money. They end up spending it on other things they don’t need so the amount of money they have in the bank or invested doesn’t change.
See for yourself, when a friend tells you about a discount or sales, ask them what they did with the amount they ‘saved’. In most cases they won’t have done anything or, will say they bought something else.
We need to help our kids get into the habit of completing the savings process. Whenever they buy something which is on sale, they need to put the money they have ‘saved’ into their savings. This is one of the keys to unlocking the power to become a true Financial Superhero.
As parents we need to make sure we set a good example for our kids and complete the process ourselves. If you cancel a subscription or spend less on your food shopping, transfer those savings to savings / your investment account (or pay off any debt).
Remember, don’t spend money just because you see a discount. That is making you poorer, not richer.
The impact of saving discounts
Let’s say someone decides to spend a day sorting out their finances and looking for ways to reduce the amount they spend. They take the following actions:Cancel unused gym subscription: £360 (based on £30 per month subscription)Find a better deal on car insurance: £100 potential savings per yearSwitch utility providers: £250 savings per year
That’s £710 per year less on expenses.
For most people, they would be happy with this amount of savings and stop there and before you know it they have spent it.
Now imagine this person invested those savings with an assumed return of 7% per year. After 10 years, those savings would be worth just under £10,000. That’s a lot of savings (and shows the benefits spending a single day sorting out your finances can have!).
Therefore, I’d recommend you:
Devote a day to finding ways to reduce your expenses (it could be your most profitable day of the year!)
Take time to ensure the money saved is actually saved somewhere (i.e. don’t spend it!)
Game - Helping you ‘saving money by spending less’
To help your kids learn about money, whilst making you richer, get your kids to help find you ways to save some money over the next week.
Whatever they save, they get to keep a percentage of those savings.
Some ideas for younger kids:
Come up with ways to recycle something rather than buying something new
Find an alternative cheaper snack they would be willing to eat in the supermarket
Collect all the loose coins from around the house
Some ideas for older kids:
Find you a better deal for insurance or utilities
See if they can find a discount for something you were planning to buy
Find coupons for things you usually buy
Find a better interest rate on your savings accounts
Remember, whatever money they save you, make sure you and your kids put that money to good use and save it. Don’t spend it on something else.
Story - Teaching your kids the concept of ‘saving money by spending less’
The story I tell my daughters uses the analogy of seeds and trees (similar to my other blogs).
Little Timmy, the seeds and ‘the Balloon Guy’
Little Timmy wanted to grow a forest. Each day he was given three seeds but needed to trade them for bread as he didn’t have any food.
On Timmy’s birthday he went to the baker to get bread. He told the baker it was his birthday and as a treat, the Baker said he could have the bread for only two, instead of three, seeds.
Timmy was overjoyed that he got to keep one seed!
Sammy ‘the Balloon Guy’ saw Timmy and went to ask him why he was so happy.
Timmy told him what the baker had done and how he got to keep a seed for himself.
Sammy said, “With that seed you can get one of my balloons. Which colour would you like?”
Timmy thought about which balloon he would like and the fun he would have playing with it.Then he remembered what his grandmother once told him “Whilst a seed may be small, a seed will grow into a tree and that tree will produce more seeds which you can grow into more trees. With patience, a seed can become a forest”.
Timmy really wanted to have It all - his own forest so he could eat the tree’s fruits, to use the seeds it produced to buy bread, have some left over to buy a balloon but to also keep his tree.Timmy politely said no to Sammy.
He planted his seed and after a while the seed grew into a tree. The tree produced some seeds and he used them to buy the balloon from Sammy whilst also having some left over to buy bread and plant more trees.
Pocket money - Creating a habit of ‘saving money by spending less’
The above has hopefully helped your kids appreciate the benefits of delayed gratification. That’s great but we need to make sure this isn’t a one off lesson. Unfortunately we forget a lot of what we learn pretty soon after we have learnt it. Therefore we need to find ways to bring these concepts into our everyday life.
The best approach to this is to allow your kids to shop around for the thing they want and then to try and find the cheapest version. Amazon.com is always a good place to start to find the best price in one safe place.
Once they have saved up enough to buy it, give them the bonus of what they saved to put into their long-term savings.
As mentioned in many other blogs, the approach of using pocket money to help them save also gives you the opportunity to talk to your kids about money.
Having these conversations will help reduce the ‘taboo’ status of money which means in the long-term your kids will feel more comfortable to ask for help if they ever need it, something which many people today are still afraid to do.
There you have it. Hopefully your kids will now form the habit of ‘saving money by spending less (the discounts)’ and not only be happy that they got something cheaper but also get to see their money grow.I hope you found this blog useful.
This is the last of a series on savings. Make sure you read the two other parts of the series,
‘Saving money to make money' and ‘Saving money to spend later’.
ACTION: Play the game, read the story, use pocket money to help your kids start profiting from ‘saving money by spending less’.
You’ll be helping them become Financial Superheroes before you know it.
If you found this blog useful then please remember to share to help other parents.
Thanks for reading!
Other blogs related to this topic:
How to teach your kids about : Saving money to make money
How to teach your kids about : Saving money to spend later
Pocket Money : The most underrated financial education tool
Investing your kids' savings : This blog could change your kids' financial future!
Games and books to help teach your kids about money click here