Saving money might seem like an impossible task but I promise you, it’s not. It doesn’t require some insane sort of intelligence or some master plan to save a little bit of money and I am here to show you the way – let’s learn how to save $5000 in a year!
$5000 might seem like some random number that I pulled out of a hat but trust me, it’s not. According to PayScale, the average person works 13 years and 2 months of their life. Isn’t that nuts?? That seems like so much of your life is spent at work and guess what – it is!
But let’s do a little bit of a calculation and please understand that I am making some pretty major assumptions here:
- If you work 13 years and 2 months, that means that you worked a total of 115,341 hours (13 years and 2 months = 158 months. 158 months * 30.417 days/month = 115,341).
- Chances are, most people do not actually work only 40 hours/week. I know that I don’t, and I know many others don’t as well, so I am going to assume the average work week is 50 hours/week. This means that you will work about 2600 hours/year.
- 115,341 total hours/2600 hours = 44.36 years that you will work at that rate of 50 hours/week.
If you save $5000/year for 44.36 years you will have $221,800!
BUT! If you had simply invested that money instead at an average annual return of 8% (the S&P 500 is above 10%), then you would have much, much more than that…
Like $2 million
All that I did was go to The Calculator Site and put in those same assumptions that I noted previously:
It’s incredible that a mere $5000/year can get you those insane returns, right? I mean, for a very large majority of people, that is plenty to be able to retire on. And if you have a spouse or a partner, they can certainly do this as well – there’s nothing holding them back, either!
But the reason that you’re all here is because you’re looking for some real help to get you to be able to save $5000/year. So, let me get started with some tangible methods to accomplish this!
Step 1 – Cut All “Non-Value” Expenses
This is a big one for me and it’s one that you can literally see immediate results with. It’s so simple to do yet so many people won’t simply because they don’t understand the true impact of their decisions.
When I say that you should cut all “non-value” expenses, I mean get rid of all the mindless spending that you don’t care about. One of my favorite quotes is from Ramit Sethi and he says that we should, “Spend extravagantly on the things you love, and cut costs mercilessly on the things you don’t.”
What that means is that if you absolutely LOVE getting your $3 Starbucks coffee every single day, and you can afford it, why would you cut that out? But if you don’t really care that much about it, why’re you spending nearly $100/month on something that doesn’t bring that much joy to you? Couldn’t those funds be used better somewhere else?
Or, with my personal favorite example, packing your lunch. I’ve lived in a few different cities ranging from a town with 40,000 people to downtown Chicago, and if I had to put an “average” price on what a lunch might be, I would say it’s right around $10. Now, that’s just a plain lunch without a drink and honestly, not really including a tip.
I mean, honestly, if you went to a place like Panera Bread (as I did this past weekend), you’re going to be spending $15 if you want a salad and a cup of soup. Absolutely insane.
So, let’s say that the average lunch is going to cost you $10, and I think that’s extremely conservative. If you go out to eat for lunch every day, you’re going to be spending $50 just on lunch when instead you could pack your lunch for $3 and save that extra $7.
Sure, you might miss out on the comradery, but why can’t you pack your lunch and then still eat with people? I will frequently pack my lunch, have coworkers order a lunch to-go, and then we meet somewhere outside and eat.
Saving that $7/day might not seem like a lot, but it adds up. If you want from eating out every day down to only once a week, you’re going to save $28/week, or $1400/year assuming you work 50 weeks!
We’re already ¼ of the way to $5000 and all you’re doing is packing your lunch…
So, what else can you do when you’re cutting out your massive expenses? The next major one that I see that people is do is blow their money going out on the weekends. I know that I absolutely was this person and when I lived in Chicago, we would spend hundreds of dollars every weekend on random food and drinks with nothing to show for it.
Sure, it was very fun, but it was very, very expensive. I was able to combine the fun of going out with a couple of budget apps, Yelp and Seated, that would then allow me to save over $150!
Now, that was $150 among a group of 6 people, but going out to eat with 6 people is not something that is unheard of.
I went in-depth previously but long story short is you can find a really cool place to eat, find some promotions that are being offered on various apps (doesn’t have to be Yelp and Seated), and then you literally get cash back.
Offer to pay for the group and have them all Venmo you and then you can reap the rewards. Now, I typically would treat the group to a round of drinks or something in fairness to them, but even if that round of drinks is $25, you’re now saving $125 in total, all for 2 minutes of looking on an app!
Truthfully, we would do this every other week during football season, but I am going to assume you do this monthly, meaning a total of $1500 in savings.
The next thing that you can do is one of my personal favorites – challenge yourself to a cheap week. My wife and I will do this once a month typically where we try to see how low we can get our food budget. We won’t sacrifice the quality of food that we eat, but we will do literally everything that we can to drop our budget as low as possible.
Shop all the specials, use all the coupon apps, and just be very creative with any food that is typically lower cost. It’s a fun way for us to challenge each other and typically we can cut our $150 budget down to $75 – $100. Assuming we save at least $50, that’s another annual savings of $600!
Step 2 – Squeeze Out That Extra Little Bit of Income
As I mentioned before, I am a firm believer that cutting costs is the best way to get started on your FI journey because literally anyone can do it, but eventually you just can’t cut anymore. You will get down to a literal bare-bones budget where you’re only buying the necessities and guess what – that’s awesome!
But if you’re still not able to reach your savings/investing goals, you need to find a way to make some more moolah!
One obvious option is for you to get a raise at work. I know that some people, such as one of my favorites, Ramit Sethi, talks about how he has a foolproof way to get a raise at work, but that just honestly seems somewhat unrealistic to me.
I work in a company where we get annual raises that are typically right in line with inflation and if you were to ask for something more, you would be laughed at. I know that Ramit has ways to combat these issues as well, but I truthfully am just not onboard with it. Instead, I think that a side hustle is a great way to go!
Personally, I define a “side hustle” as any way that you can increase your income that is not something that you would normally do.
While that includes some of the obvious side hustles like Uber, Grubhub, mowing yards, etc., there are some other off-the-wall things that you can do as well.
My favorite of which is that if you have a job where you get paid to work extra, you do that. If your job has shifts, then why not just try to pick up one shift/week that piggybacks on a shift you already had? If you pick up a 5-hour shift one day/week, 50 weeks out of the year, and you’re making $12/hour – that’s $3K right there!
You spent no extra time driving to work; no extra time getting ready. You just worked 5 more hours and now are 60% of your way to this $5000 goal!
I recognize that not all of us are in this situation, so why don’t you think a little more outside the box. You can even do one-off things like having a garage sale.
My mom used to have garage sales every year and she would bring in $700-$1000. Now, on the flip side, that means she was buying a lot of crap, but at least she was able to get something back for it!
But if you have had bad spending habits and you’re going to correct them, you also likely have a lot of things to get rid of!
I recently wrote all about my top ways to increase income and I think that realistically you can $15/hour driving for Uber, especially if you’re willing to time it right and drive during the busy times. I don’t think that it will take you a ton of time and effort, but by simply dedicating 4 hours/week, you’re going to be looking at $60 for that week.
After you take out your gas and taxes, you’re conservatively sitting at $30 in that week from 4 hours of driving, and that is a very conservative number. That means that you’re bringing home $1,560 each year by simply just dedicating those four hours.
One time I took a ride with a driver that would only drive Uber when he had to go somewhere. For instance, his hour-long commute into the city of Chicago each day. He said that on rainy days he would wake up an hour early and just pick up commuters that were also heading into the city.
Because of the rain, they didn’t want to use public transportation and get wet so they would voluntarily choose to take an Uber, and because so many others did this same thing the rates were always high. He was already going into the city, so he didn’t lose much at all and instead was paid a pretty significant chunk of change to basically take 30 extra minutes.
It’s just that type of creative thinking that you can employ to really max your income!
So, did we hit our goal to save $5000 in a year? Let’s check:
- Packing Lunch – saved $1400/year
- SMART Eating Out – saved $1500/year
- Cheap Week – Saved $600/year
- Uber/Lyft – Increased Income by $1500/year
All in, we’re at a grand total of $5000 on the nose! Not too shabby right? Especially when you consider that all these things are very, very simple to do. I mean, you can literally download any of these apps and start saving right now and be driving Uber/Lyft within a couple days!
You might be the type that already does pack their lunch, doesn’t go out, drives Uber, etc. – that’s great! But there are other things that I guarantee you’re missing out on – these were just the low hanging fruit that I feel a lot of people have opportunities to maximize.
If none of these are really hitting home to you, my recommendation would be to focus on living a minimalistic life first and then moving to an increased income later.
Once that spending is under control, then you can move on to bigger and better things, and that’s where Doctor Budget comes in!