About 63% of Americans expect to save more this year, according to a new survey from Bank of America.
Although rampant inflation from 2022 appears to be slowing, consumers are still grappling with high prices for everything from rent to eggs. As a result, 77% of those who set financial resolutions said inflation could affect their ability to achieve them.
Fear not, an army of financial gurus will tell you. To increase your savings rate, all you have to do is cut all the small and extra expenses from your daily life, like lattes and avocado toast.
This was Rachael Camp’s strategy when she first moved to Chicago and was paying more rent, thus spending more of her budget.
“I try to make coffee at home. I make all the food at home. It’s very tiring to try to keep this habit every day,” he said. “I always blow the budget.”
Today, Camp is a certified financial planner and the owner of Camp Wealth, where he advises his clients a little differently.
“Buy a latte. Splurge on avocados. Keep renting,” he wrote in a recent tweet. “In 2023, we focus on the needle-movers: 1) Costs remain low 2) Increase income 3) Invest the difference.”
Here’s what they say you’re better off focusing on one-time, major financial moves rather than dwelling on the day-to-day.
Reduce fixed costs in large chunks
When the lease ended on Camp’s apartment in Chicago, he made more money, which made him upgrade to nicer digs. “What a lot of people do is keep moving up to better apartments,” he said. “Many of my friends are starting to get their own apartments.”
Camp chose to go somewhere cheaper and live with a roommate. For him, it comes down to a simple calculation. “If I didn’t buy a latte every day, it would save me $2,000 a year,” he said. “If I can buy a $2,000 apartment by myself, but share it with a roommate and pay $1,000 less, that’s $12,000 a year.
If I can buy a $2,000 apartment by myself, but share it with a roommate and pay $1,000 less, that’s $12,000 a year.
Camp Rachel
certified financial planner
The same logic applies to major purchases such as houses and cars. If there is a possibility that you will move in the next five years, for example, buying a home will come with enormous home costs that you may have difficulty recouping, said Camp.
“You can figure it out in certain situations, but for a lot of people, it’s not an investment,” he said. “It’s not all it’s cracked up to be.”
To reduce transportation costs, consider whether you need a car if you live in an area with a lot of public transportation.
If a car is absolutely necessary, even “buying a car that’s a few years old rather than new” can be a needle mover, Camp said.
Increase your income to give yourself breathing room
Raising your income is easier said than done. But one way to start is to take up a side hustle, and there is no shortage of them out there, whether you are an artist, an introvert or someone who prefers to work from home.
If not, you’ll need to find ways to supplement the income you earn from your 9 to 5. To that end, “knowing how to negotiate salary effectively and knowing your worth is really important,” says Camp.
Camp’s number 1 question for clients looking to increase their income: “Do you regularly interview elsewhere?”
That way, you can find out if you’re being paid fairly at your current gig or if you could make more elsewhere. The typical American who changed employers between April 2021 and March 2022 earned a 9.7% increase in inflation-adjusted “real” wages, according to Pew Research.
If you don’t want to leave, “you can take that offer, bring it to your current employer and say, ‘Hey, I think I’m worth a little more,'” Camp said.
Invest the difference
If you have earned less or earned more, congratulations. Now is the time to put your surplus toward financial goals, such as paying off debt, building an emergency fund and investing for retirement.
With money being pulled in several different directions, investing in yourself can feel like combing through your budget every day. That’s why Camp recommends setting your investments on autopilot wherever you go.
“[Workplace retirement plans such as] A 401(k) or 403(b) account is a master at automation. You never see the money reach your checking account because it gets sent to your investment account before you see it. This is the first step we need to take,” Camp said.
You can also set up automatic transfers from your bank account, for financial purposes and living expenses.
“When my money hits my checking account, it’s sent straight to my errands before I can spend it,” Camp said. “It goes into a Roth IRA, it goes into a taxable brokerage account, it goes into a vacation savings account.”
If you’ve paid your bills too, any money left over can be spent “guilt-free,” he said.
Register now: Get smarter about your money and career with our weekly newsletter
don’t miss: There’s a 61% chance of a recession this year, economists say – what your money means
