7 Proven Money Saving Strategies

The reason many people have trouble saving money is because personal finance can get really confusing. So, I came up with the Pineapple Pizza Rule. It’s a principle that reframes money to make it much more approachable.

Whenever I was about to buy something that wasn’t pineapple pizza, I would ask myself: How many pineapple pizzas would this cost? For example, if a pair of shoes costs $70 and a small pineapple pizza costs $7, then the shoes costs 10 pineapple pizzas. So, I would think, "I can either buy these shoes, or I can get 10 pineapple pizzas."

This simple reframing, through the lens of something I love, helps me decide whether buying the item is worth giving up something I know I truly enjoy. And, of course, you don’t need to use pineapple pizza dollars—you can substitute it with anything you love, like hot dog dollars, coffee dollars, or magic lamp dollars.

When I didn’t have much money, I would always default to buying the cheapest things because I thought I was saving money. I used to think, “Why would I spend $60 on jeans when I could get one for $12.50 from Dollar Tree?” But the problem I encountered was that everything started falling apart in a few months.

You see, focusing solely on the absolute price or the upfront cost to buy something didn’t account for the additional cost and time needed to replace or repair those items. So, what I do now is buy things based on cost per use.

For instance, I was obsessed with high-quality coffee for a while. Every day, I would buy myself an iced coffee at a café because I could never make it taste as good at home. So I thought to myself, “I could probably save a lot more money if I can make café-quality coffee at home.”

Let’s say in New York City, an iced coffee costs $7. If I bought it every day from Monday to Friday, I would spend about $1,820 on iced coffee in a year. Now, I could keep doing that, or I could buy a used $500 Breville espresso machine for home.

Now, $500 for a coffee machine sounds like a lot of money, but if I divide $500 by 365 (the number of days I’d be drinking coffee), the cost per use would be just $1.36. And if I use the Breville machine every day for two years, the cost per use drops to 68 cents. I’m okay spending 68 cents every time I make coffee compared to $7 at a café.

The 036 rule is something I recommend everyone follow before they start investing or even paying off debt. You might be familiar with the regular emergency fund rule that suggests saving 3 to 6 months of living expenses. While that’s a great starting point, you can improve this approach to better fit your individual situations. Not everyone needs to save as little as 3 months or as much as 6 months of living expenses.

Here’s how you can use the 036 rule to determine how much you should actually save:

1. Baseline (3 months): Everyone should start by saving 3 months of living expenses, no matter what.
2. Dependents (0-3 months): If you have kids or any dependents, add 0 to 3 more months to your emergency fund.
3. Job and industry stability (0-3 months): Consider your job and industry. Do you work in an industry where you could quit today and find a new job tomorrow? Or is your industry more cyclical, with fewer hiring opportunities? Based on this, add 0 to 3 more months.
4. Income streams (0-3 months): If you have more than one stream of income, and depending on how easy it would be for you to generate cash in the future, add another 0 to 3 months.

The next rule comes from the book The Millionaire Next Door by Thomas Stanley. The "Wealth Triangle" — UAW, AAW, or PAW. Basically, this triangle shows you how you're doing in terms of net worth based on your current age and income.

When I realized I was an AAW, it really motivated me to push harder. So, here's how the Wealth Triangle rule works:

First, you take your age and multiply it by your pre-tax income. Then, you divide that total by 10. For example, if you're 35 years old and you're making $150,000 a year, you multiply those numbers together, which gives you $5.25 million. Then, you divide that by 10, and you get $525,000. This means your net worth right now should be around $525,000.

Now, compare that number to your actual net worth to see where you belong on this Wealth Triangle:

1. If your actual net worth is half the expected level or less (in this case, around $260,000), you're considered an Under Accumulator of Wealth (UAW).
2. If your net worth is around the expected level ($525,000 in this case), you're an Average Accumulator of Wealth (AAW).
3. If your net worth is twice the expected level or more (like $1.2 million), you're a Prodigious Accumulator of Wealth (PAW).

The point of the Wealth Triangle rule isn't to make you feel bad if you're at the bottom or middle of it. Instead, it's to give you a target to strive for. Depending on where you are, it will either help you become excited about your situation or motivate you to make some changes.

One caveat to this rule is that it doesn’t work well for people under 21, who haven’t yet had much of a chance to start working and saving money. So, if you're under 21, just use this as a motivator for what you should aim for in the coming years.

One thing I absolutely believe everyone should do if they have access to a 401(k) is to check if their company offers an employer match. If they do, you always want to contribute enough to take full advantage of that match. This is essentially free money from your company, incentivizing you to save for retirement.

In 2023, the average employer match ranged between 4-6% of your annual salary. For example, if you earn $65,000 a year and have a 6% match, you can contribute $3,900 to your 401(k), and your employer will contribute another $3,900, no strings attached. This brings your total contribution to $7,800.

Plus, a study found that the annualized return from the tax advantages and savings of a 401(k) is around 73%. So, tucking your money away in a 401(k) can boost your returns by about 73% each year. While this may not seem huge at first glance, over several decades, especially with hundreds of thousands of dollars saved, along with the tax savings from reducing your taxable income, this can amount to quite a substantial sum.

The 20-4-10 rule is an antidote to America's number one wealth killer. In 2022, AAA found that the average cost of owning a car was $8,946 annually. To determine how much car you can actually afford without destroying your wealth, follow these steps:

1. 20% down payment: You should put at least 20% of the car's price as a down payment. While some lenders may allow you to put down less, it's best to avoid that. A smaller down payment leads to higher monthly payments in the long run, costing you more money overall. The more you can put down upfront, the better.
2. 4-year financing limit: Never agree to financing terms longer than 4 years. The longer the loan term, the more you end up paying in interest. Some lenders may include a clause allowing interest rates to increase after the fifth year, which can significantly raise your costs.
3. 10% or less of your monthly income: Aim to spend 10% or less of your gross monthly income on car expenses, including loan payments, insurance, and maintenance. If you can't follow the 20-4-10 rule, then that dream car—whether it's a Lambo or not—might be out of your budget.

Warren Buffett once said, "Price is what you pay; value is what you get." Although he was referring to investing in stocks, we can apply this to buying things in general. Basically, an item’s value is what you get from it—how it makes you feel, the problems it helps you solve, and the transformations you experience. The price is simply what you pay to acquire those things.

An item’s true value is the difference between what you get from it and the cost to acquire it. The trick to saving money is to stop focusing solely on the price. If you constantly focus on price, you develop an unhealthy relationship with money and spending.

So yes, in a way, I’m giving you permission to spend money, but under one condition: the reality is, if you only focus on the price and saving money, you’re going to deprive yourself of life. You’ll hesitate to attend birthday parties, go on vacations, or even treat yourself to an iced coffee once in a while. You’ll try to save every penny until you’re 75, and if you’re still alive by then, maybe you’ll spend some of it. But the problem is that deprivation will just lead to burnout, and you’ll give up.

The better way to approach saving is to aggressively spend on things that bring you true value and joy, but only if you aggressively cut costs on things that don’t. So, if a $5 iced coffee makes you the happiest person in the world, boosts your productivity, makes you more social, and reduces your stress for the day, chances are, the true value you get from that $5 cup of coffee is worth far more than the cost. So go and enjoy it!

_____________________________________________________Thank you !