How to Save Money

How  to  Save  Money  

A practical guide to spending and consuming less.

Following the process described in this book will help you to:

• Find where your money is going.

• Get rid of wasteful spending habits.

• Live the way you want.

In a nutshell:

• It’s not how much you earn that is important; it’s how much you save.

• A simple way to wealth is to save small amounts over long periods of time. This book explains, in
detail, how to do that.

• Beyond a certain point money does not buy happiness. That point is lower than most people
expect. Using the process described in this book should help you find it for yourself. Once you
know the point and reach it, you can choose when and how to work.

The practical parts of this book aren’t original; they are tried and tested methods. The main source has
been “Your Money or Your Life” by Joe Dominguez and Vicki Robin. The exercises in this book are a
personal interpretation of their techniques.

This Ebook is FREE. Please pass it on. Thank you.

Questions and comments are very welcome.

Chris Lampard & Carole Livesey, [email protected], Twitter: @chrislampard

 How to Save Money

Contents  
Contents................................................................................................................................... 2  
Pictorial Overview of the Book .............................................................................................. 3  
Chapter 1: Overview of the book ........................................................................................... 4  
What the book is about .............................................................................................................................. 4  
A snapshot of this book.............................................................................................................................. 5  
An important question to ask yourself ........................................................................................................ 6  
How to decide if this process is worth following ......................................................................................... 6  
Chapter 2: The Structure of this Book .................................................................................. 9  
The structure of this book and how to use it…........................................................................................... 9  
The 4MAT learning system ........................................................................................................................ 9  
Chapter 3: Background – why How to Save Money works ............................................... 12  
Where this book came from: modelling successful savers ...................................................................... 12  
How successful savers behave................................................................................................................ 13  
Know how much is enough ...................................................................................................................... 16  
Conscious control of behaviour may be an illusion .................................................................................. 17  
Chapter 4: Getting motivated ............................................................................................... 20  
Chapter 5: Recording............................................................................................................ 21  
Why is Recording important? ................................................................................................................... 21  
The What of Recording ............................................................................................................................ 22  
How to do Recording................................................................................................................................ 23  
What if? questions for Recording ............................................................................................................. 24  
Chapter 6: Sorting your Spending....................................................................................... 27  
Why Sorting your Spending is important?................................................................................................ 27  
The what of Sorting your Spending.......................................................................................................... 27  
How to develop your own set of General and Detailed Spending Areas ................................................. 31  
What if? questions for Sorting your Spending.......................................................................................... 33  
Chapters 7 to 9: The Monthly Review.................................................................................. 35  
Chapter 7: Working out your monthly income and expenditure ...................................... 36  
Why is Working out your Monthly Spend/Income Important? .................................................................. 36  
The What of Working out your Monthly Totals ......................................................................................... 36  
How to work out your Monthly Income and Expenditure.......................................................................... 38  
What if? Questions for Working out Monthly Income and Expenditure.................................................... 39  
Chapter 8: Reviewing your Expenditure ............................................................................. 41  
Why Reviewing your Expenditure is important?....................................................................................... 41  
What you need to know about Reviewing your Expenditure.................................................................... 42  
How to Review your Expenditure ............................................................................................................. 44  
What if questions for Reviewing your Expenditure................................................................................... 44  
Chapter 9: Making Changes ................................................................................................. 46  
Why Making Changes is important .......................................................................................................... 46  
What you need to know about Making Changes...................................................................................... 46  
How to Make Changes............................................................................................................................. 49  
What if questions about Making Changes................................................................................................ 49  
Chapter 10: Final Words ....................................................................................................... 52  
Appendix 1: Sample Monthly Review Worksheet .............................................................. 54  
Appendix 2: Sample Change Sheet ..................................................................................... 55  
Appendix 3: Bibliography..................................................................................................... 56  

2
 How to Save Money

Pictorial  Overview  of  the  Book  

Overview Structure of What

if?
Why?

(Chapter 1)
the book How
What?
(Chapter 2) to?

Background to
the book
(Chapter 3) $
Set a goal
(Chapter 4)

 
Setting the scene

 
Food

Travel Sorting your

House
Spending
(Chapter 6)
Holiday

Luxuries

$ Income
Spend

? x2
Monthly
Review 2
Two questions
(Chapter 8)

Monthly
Review 3
Make changes
Recording (Chapter 9)
(Chapter 5)

Monthly Review 1
Income and spend
(Chapter 7)
 

The How to Save Money process

3
 How to Save Money

Chapter  1:  Overview  of  the  book   Overview

(Chapter 1)
Chapter  Summary  
In this chapter:

• What the book is and isn’t about.

• A snapshot of the “How to save money” process: each of the four activities is
introduced.

• Test your commitment to the process.

What the book is about

This book describes a way to control the flow of money in your life.

It’s intended as a workbook, not a reading book. You need to do the exercises to get results.

The process described requires a commitment of time, specifically:

• Several hours up front to learn and set the process up.

• A few minutes each day to record your income and expenditure.
• A few hours at the end of each month to analyse your records and plan the changes
you want to make.

What can you expect to gain by investing your time and energy in this process?

What this book is NOT about…

This book does NOT include:
• Financial advice – this is not an investment strategy.
• How to increase your income – there are many excellent books about this.
• A lifestyle – this book is not about a particular way of life or philosophical position.
The tools can be used by anyone regardless of their political, economic, religious or
ethical beliefs.

What this book IS about…

If you persistently do the processes described in this book over a period of time you can
expect to…

• Live within your means – you’ll find out if you are making or losing money each
month and how to make the adjustments required to spend less than you earn.

• Reduce your debts and increase your savings – one result of living within your
means is that you can reduce debts, assuming you have some, and once your debts
are paid off, you can build savings.

• Be happier – I know, it’s a bold claim. However, consider this – when asked, “do you
1 2
earn enough to meet your needs?” 62% of Australian’s answered “No”; and, of the
top 20% of earners 46% answered “No”. It is inconceivable that half of Australia’s
richest people are deprived; and yet, that is how they feel. This suggests that money
does not buy happiness. So how do you find happiness? Read the book, practice the
techniques and find out.

4
 How to Save Money

A snapshot of this book

Do you remember school photographs? Each person has their own portrait picture and a
picture of the entire class is taken too. This overview section is like the photograph of the
entire class. It’s a big picture, no single individual stands out, and you can’t see all the details,
but you’ll get an overview. The following chapters are like the individual portraits: each
focuses on one thing, which means the details are clear.

Why is the snapshot useful?

When you set out on a journey to a new place you consult a map. It shows you the places
you’ll pass through, where you could stop to rest, interesting features along the way and the
destination. It helps you to plan your journey and decide what you might need along the way.
As you travel, the map helps you judge how far you’ve come, how much further you have to
go and what’s coming next.

This “snapshot” is the map that will help you on a journey to financial freedom.

What are the main stages on this

journey? Definitions  
The exercises in this book are divided into Throughout this book I’ll include boxes like this
to define any words or terms I’ve used which are
three groups: either new, or have a specific meaning in this
context. All the Definitions are also gathered
• One daily activity together at the end of the book.
• A single one-off activity Detailed Spending Areas – a sub-division of a
• One Monthly Review activity Spending Area. Enables a more detailed view of
expenditures.
The daily and monthly activities are the core Expenditure – the money you spend. Includes
processes for changing your relationship with every thing you spend money on, right down to
money and becoming wealthier and happier. the last cent.
The one-off activity is part of setting up the Income – money you earn by any means.
Monthly Review. Includes things like wages, interest on savings,
dividends, rent paid to you, money you find in
the street, gifts etc.
Daily  activity  
Monthly Review (Chapters 7-9) – an activity
Recording (Chapter 5) – write down all of your where income and expenditure are analysed,
expenditure and income on a daily, or in some unhelpful spending habits are identified and
ways to change them are developed.
cases monthly, basis. It takes a few minutes
each day. Thoroughness in this activity is at Recording (Chapter 5) – daily activity of writing
the heart of the program. Recording all you down everything you spend and earn.
spend and earn makes the Monthly Review Sorting your Spending (Chapter 6) – an
activity possible. exercise to develop the Spending Areas and
Detailed Spending Areas you will use month-by-
month to simplify your expenditures.
One-­‐off  activity   Spending Areas – the “buckets” that catch the
Sorting your Spending (Chapter 6) – this spending in a particular area of your life.
activity is initially done once to set-up the Together the spending Areas cover all you
expenditure.
Monthly Review (explained below). It takes a
couple of hours. You may choose re-visit it Value – Here value means how much something
later as you become more familiar with the is worth. For example a cup of coffee may cost
$3.50. So when you ask yourself “Did I get full
process. value for that spend?” you’re asking “was that
cup of coffee worth $3.50?”
In step 1 of the Monthly Review (explained Values – means the things that are important to
below) you simplify your expenditure by you in life. So, when asking yourself “Does this
“lumping” similar things together. In the expenditure meet my Values?” you’re asking “Is
“Sorting your Spending” activity you create the spending that money in line with the things that
are important to me in life?”
“lumps” you want to use. There are two levels
in the hierarchy of “lumps” (that’s the last time
I’m going to call them “lumps”). The two levels are: Spending Areas and Detailed Spending
Areas. A Spending Area is like a bucket; each bucket catches some of your expenditure; and

5
 How to Save Money

together, they catch all of your expenditure. The Detailed Spending Areas are smaller buckets
under the Spending Areas. They increase the resolution for noticing spending patterns.

Monthly  activity  
The Monthly Review activity (Chapters 7-9) – once a month, usually at the end of the
month, you carry out a Monthly Review. The review takes a few hours; the first time you ever
do it will take the longest and as you get used to it the process gets quicker. The Monthly
Review helps you to:

• Find out whether you are spending more or less than you earn.
• Identify spending habits that aren’t serving you well.
• Develop ways to change those habits.

The Monthly Review has three steps

Step 1: Work out your monthly income and expenditure totals (Chapter 7)
You start by gathering together records of all your income and expenditure. There is likely to
be a lot of information, especially for expenditures; to make it manageable you simplify
expenditure by adding similar things together into Detailed Spending Areas (see the one-off
activity Sorting your spending above). You then add up the total expenditure in all the
Detailed Spending Areas and compare it to your total income; the difference between the two
tells you whether you’ve made or lost money that month.

Step 2: Reviewing your expenditure (Chapter 8)

For each Detailed Spending Area you ask two questions:

• Did I get full value for this expenditure (i.e. was it worth the money)?

• Does this expenditure meet my Values (i.e. does the expenditure support what I
consider important in life)?

Your answers to these questions highlight areas of expenditure that may not be serving you
well and where you might want to make changes.

Step 3: Making changes

Where you work out how to do something different in those Detailed Spending Areas you
want to change.

An important question to ask yourself

You now have an overview of the journey this book will take you on and some idea of why the
journey may be worth taking. You, hopefully, appreciate that to complete the journey is going
to require a commitment of time and energy from you.

Now is the time to ask yourself:

“Am I willing to commit to learning and using this process?”

If the answer is yes move on to the next chapter.

And, if you’re still undecided…

How to decide if this process is worth following

Here are two exercises to help you decide if you want to commit time and energy to learning
and using this process. One involves maths, the other is “fluffy”.

Your hourly rate if you follow the process

If you do the exercises in this book, and get into the habit of using them, you will reduce the
amount you spend each month. This is like receiving a tax-free pay rise: if you save $200 per

6
 How to Save Money

month, it’s the same as being paid and extra $200 per month, tax-free. If you save $1000 per
month, it’s the same as a $1000, tax-free, pay rise. So, how much will you earn and how
much time will it take…

1. Work out roughly how much you currently spend per month. You could work this out
by taking how much you earned last month and subtracting how much your bank
balance went up by over the same period. Or, you may want to work it out in another
way. The aim is to get a rough (e.g. to the nearest hundred) figure.

2. Work out what 20% of your approximate monthly expenditure is (i.e. divide the figure
from step one by five). 20% is the minimum amount most people can expect to save
3
each month by using this process over the long-term.

3. The process will take a few minutes each day and a few hours at the end of the
4
month. Let’s say that will amount to 10 hours of your time each month.

4. To get your hourly pay rate for using the process, divide the savings per month from
step 2 by the time it will take to get the saving from step 3, i.e. 10 hours. This is the
hourly rate, tax free, that you’ll be paying yourself if you do the exercises. Is it worth
making the commitment?

Fictitious  example
Kim takes home $4000 per month after tax and saves about $500 per month; Kim’s monthly
expenditure is $3500 per month ($4000 - $500 = $3500). 20% of $3500 is $700 ($3500 ÷ 5 =
$700). Assuming it will take 10 hours a month to do the exercises, Kim realises that’s $70 per
hour, tax-free: roughly twice what he/she is earning at work. Kim decides to do the exercises
for 6 months and see what happens.

A questionnaire
If you don’t currently enjoy maths, then another way to decide if the process is for you, is to
answer this (biased) questionnaire:

Answer yes or no to each of these statements.

There never seems to be quite enough money in my life Y/N

I’m thinking about how I’ll fund my “retirement” so I can live well in the future. Y/N
I always seem to be rushing around with no time to relax. Y/N
I want my kids to have the best education, but I’m not sure how I’ll pay for it. Y/N
I want to teach my kids how to manage money for themselves. Y/N
I hear that food and energy costs are going to keep going up and I’m not sure Y/N
how I can afford to meet the increases.
I’m working flat out and never seem to have time to enjoy myself. Y/N
I have cupboards full of stuff I don’t use (e.g. clothes I rarely wear; books I’ve Y/N
never read; DVDs I’ve maybe watched once; CDs I may have listened to once or
twice; food that’s out of date etc. etc.).
I’m in debt (that usually means a mortgage) and can’t see an end to it. Y/N
I want to save up for a deposit on a house (or another large purchase). Y/N
My car costs me a lot to run and maintain, but I can’t imagine life without it. Y/N
I want to be financially independent so I can choose when and how I want to Y/N
work.
I want to make a lifestyle change but don’t know if I can afford to. Y/N
I want to reduce my carbon footprint and live more sustainably. Y/N

If you answered “Yes” to any of the questions, you will benefit from doing the process (I did
warn you it was a biased questionnaire.). The more Yes answers you gave, the more you

7
 How to Save Money

have to gain. (If you didn’t answer “Yes” to any of the questions, then I have one further
question for you: why did you read this far?)

So, have you decided? Are you ready to commit some time and energy to making over $700
per month, tax-free? Are you ready to change your life? Yes, yes, yes! Read the next chapter.

Key  points  
Throughout this book the key points of each chapter are summarised at the end, like this. All
the Key Points are also gathered together at the end of the book.

• The “How to save money” process consists of one daily, a single one-off and one
monthly activity.

• The Daily activity is to write down everything you spend and earn. This takes a few
minutes each day.

• The one-off activity involves setting up a two-level hierarchy (Spending Areas and
Detailed Sending Areas) to draw together similar expenditures during the Monthly
Review.

• The Monthly Review is, unsurprisingly, the Monthly activity. It involves analysing your
expenditure and income, and planning for changes you want to make. It takes a few
hours once a month, and the more you do it the quicker it gets.

• If you practise these activities consistently over several months you can expect to
spend less than you earn; reduce debts and/or start saving; and, probably, become
happier.

• An average person, who is currently spending around $3500 per month, can expect
to save $700 per month by doing the process over the long-term. That works out at
around $70 per hour for the time spent working the process. All figures are tax-free.

1
Affluenza: when too much is never enough, Clive Hamilton and Richard Denniss,
2
It’s not just Australian’s, Hamlton and Denniss (above) supply comparisons for other “developed” nations.
3
If 20% sounds unlikely, then let me supply some context. We’ve cut our own expenditure by about 90%. That’s
taken some substantial lifestyle changes though. From our experience and from other sources (e.g. see the Your
Money or Your Life book) 20% is highly achievable for most people, without feeling deprived, simply by eliminating
those expenditures you don’t actually get good value from.
4
10 minutes per day times by 30 days = 300 minutes, which is 5 hours; plus 5 hours for the Monthly Review equals
ten hours. This is probably an over-estimate for most people.

8
 How to Save Money

Chapter  2:  The  Structure  of  this  Book   Structure of

What
if?
Why?

the book How

What?
(Chapter 2) to?
Chapter  Summary  
In this chapter:

• The book is structured: background information followed by skill descriptions.

• The chapters on skills follow a specific “optimal learning” structure called 4MAT.

• The book works best if you read it in a certain way.

• Why it’s important to do the exercises.

The structure of this book and how to use it…

This chapter explains the way the book is written. It is not essential reading and has nothing
to do with the “How to save money” process. However, the book is structured in a specific
way to help you learn the techniques; reading this section may make subsequent chapters
easier to digest.

Chapter 3 is background research and ideas that put the process in context and explain why
the skills work. Chapter 4 is a simple goal setting exercise to help with motivation.

The 4MAT learning system

The remainder of the book is a description a set Definition  
of interlinked skills for managing your money 4MAT – pronounced “Format”, an optimum
learning method developed by educational
more effectively and making changes in your life expert Bernice McCarthy
(Chapters 5 to 9). These chapters follow a
1
specific learning structure called 4MAT.

Why use 4MAT?

The 4MAT system draws on the techniques used by some of the world’s most successful
educators. It is structured around the four most common questions learners ask. The 4MAT
system is very effective at helping people learn quickly and easily regardless of their preferred
learning style.

What you will find in each section

Someone learning a new skill usually has four types of question they want answered:

• Why?
• What?
• How to?
• What if?

Each question is answered in a specific way. The way 4MAT is used in this book is explained
in the table on the next page.
 How to Save Money

4MAT question What the question means for a learner. How the question is answered in this book

Why? Why is this subject important and why Anecdotes, research and/or examples that
should I spend time learning it? demonstrate why the skill is useful.

What? What are the main facts, key points and Information about the skill, including a list of the
other information I need to use the skill? key points at the end of each chapter.

How  to? How do I use the skill into practise? A specific, detailed procedure for applying the
skill at its simplest level.

What  if…?   “What if...?” questions explore how the skill A series of “What if...?” questions with answers.
works in different environments and The questions are drawn from our own
situations; they explore the complexities experience of using the skills and from questions
that arise when a skill is applied in the asked by participants at workshops we’ve run on
“real world”. these skills.

Bernice McCarthy, the developer of 4MAT, recommends working through the questions in the
order in the table. Answering the Why question creates interest, motivation and context for the
facts that are presented in the What section. Once a learner knows the facts, it makes sense
to apply them in a simple exercise (the How to section.) Finally, once you have had the
experience of using the skills, you will probably have questions about that experience. This
includes exploring exceptions and unusual situations. These are addressed in the What If
section.

Each chapter of this book that presents a specific skill (Chapters 5 to 9) is structured using
the 4MAT system and answers the four questions in the order above.

How to use this book

How you choose to use this book will depend on what you want to get out of it.

You might like to consider this approach:

1. Skim through the entire book, this should just take a few minutes and will give you an
idea of the overall layout and contents.

2. Read the Overview (Chapter 1) and Introduction (Chapter 3).

3. If you need help with motivation read and do the exercise in Chapter 4.

4. Work through Chapters 5 to 9 in order. The skills you are learning follow on from one
another in a logical sequence. You will learn quickly and easily if you follow the
sequence as it is laid out in the book. (Some of the exercises are best done at certain
times; for example, The Monthly Review is done once a month, usually at the start of
the month after the one you are reviewing. This timing is made clear in the “What”
section of each chapter.) For each chapter:

a. Read the “Why” section.

b. Read the “What” section.

c. DO THE EXERCISE in the “How to” section. This process only works if you
DO THE EXERCISES. Refer back to the “What” sections to resolve any
questions you have.

d. Once you have done the exercise skim through the “What if?” section to find
out if any of the questions are relevant to your experience. Some may be,
some won’t. If you have a question that hasn’t been answered: contact me by
email, I’m really happy to answer your questions.

10
 How to Save Money

5. It’s best to work with the exercises in Chapters 5, 7, 8 and 9 for at least six months
(the exercise in Chapter 6 is done just once). Six months is really the minimum time
required to get results; better still, get into the habit of doing the exercises for the rest
of your life.

“What if?” Questions you may have at this stage

Do I really have to “DO THE EXERCISES”…can’t I just read the book?
If you want to change your spending habits, grow your savings and move towards being
financially free, then please do the exercises. If you just want information, I suggest you find
something else to read: there’s a bibliography at the end of the book.

What if I prefer to learn in my own way and jump from topic to topic as it suits me?
Well, that’s OK as well. To help you, keep in mind that the chapters are presented in the
sequence it seems best to do them in the first time round. Also keep in mind that the
exercises follow on from one to the next. If you do take this approach of hopping from place to
place, please, once you’ve hopped all you want, go back and DO THE EXERCISES in the
order presented.

Key  points  
• This book has a structure. Chapter 3 is Background information. Chapter 4 is a
motivational exercise. Chapters 5 to 9 are a series of practical skills arranged in a
logical, step-by-step way.

• Chapters 5 to 9 (the practical skills) are structured in a specific way. Each section
aims to answer four questions:

o Why is this topic worth learning?

o What are the facts and key points?
o How to apply the facts in practise?
o What if? Questions that often arise when someone uses the skill.

• The best way to make use of the books is:

o Skim through it.

o Read the Overview and Introduction sections.
o Work through the rest of the book in the order presented.

• Don’t just read the book: DO THE EXERCISES.

1
4MAT was developed by Bernice McCarthy. For more information see www.aboutlearning.com. I learned it from
NLP trainer Richard Bolstad, www.transformations.net.nz

11
 How to Save Money

Chapter  3:  Background  –  why  How  to   Background to

Save  Money  works   the book
(Chapter 3) $
Chapter  Summary  
In this chapter:

• Where the techniques in this book come from.

• The habits of successful savers.

• Materialism and why it doesn’t make people happy.

• The techniques in this book are a road map to an alternative way of life.

If you’ve ever visited a new country you may have used a travel guide. The guide is usually
laid out with a background section, describing the history, culture and geography of the
country; and in a separate section you find out about specific places you can visit and the
things to see and do. The background information is useful because it gives you a context for
understanding and appreciating the places you visit and the things you do.

This chapter is like the background to a travel guide; it sets the scene and creates a context
for the tools in the remaining chapters.

Where this book came from: modelling successful savers

You’ve probably seen one of those scale models of an old sailing ship? Imagine the work that
goes into building one. The model builder must have searched for a ship they wanted to re-
create and then studied the original carefully. They probably sought out pictures, plans and
descriptions of the ship. Eventually, they had enough information to draw up a plan, gather
their materials together and start to build the model. After a great deal of trial and error, effort
and time they finally finish the model and proudly share it with others.

A similar process can be used for modelling human behaviour: find people who are
successful at something you want to do; gather information about how they think and act to
get the success they do; and then build a model of that behaviour so that you can use it to
1
teach yourself and others how to get the same results . This book describes a model for
saving money.

Over the last few years my wife, Carole, and I have talked to and read about people who are
successful with money in a particular way: they are prodigious savers. We have worked out
the specific ways that they think and behave to get the results they do. From that we have
built a model of how to get similar results for ourselves. This book lays out that model for you
and describes a series of steps for you to take to get the same results. And just to remind
you, we’ve found that this model is useful for:

• Living within our means.

• Building savings.
• Becoming happier, by developing a creative and resourceful approach to getting what
we want from life.

In this chapter you’ll discover some of the sources we’ve used to develop the How to Save
Money model and the key behaviours that those sources have lead us to adopt.
Understanding these behaviours should help you with the specific, practical steps described
in the following chapters.
 How to Save Money

How successful savers behave

Some of the key behaviours that successful savers use are:

Spend less than you earn

Imagine you want to find out how wealthy people think and behave. One idea might be to find
some millionaires to talk to. If so you’d probably seek out people living in large houses, driving
new top of the range cars, wearing designer clothes, eating in expensive restaurants and
dripping with jewellery. After all, isn’t that what the TV, fashion magazines and the papers tell
us to expect? Well, you might be surprised. Certainly you’d find one or two millionaires like
that, but far fewer than you might expect. In actual fact (as discovered by researchers
Thomas Stanley and William Danko and explained in detail in their book “The Millionaire Next
Door”) many of those people, while they appear rich, are often up to their eyeballs in debt. To
their surprise Danko and Stanley found that many millionaires are actually very average
looking people. They live in modest suburbs, drive older smaller cars, wear clothing from
discount retailers, eat at home and don’t own expensive jewellery. What’s more they are often
in very ordinary, moderately well paid professions; their wealth doesn’t come fro investing,
gambling, high salaries or inheritance.

So how did these ordinary people become millionaires? By saving small amounts regularly
over a long period of time. How do they manage that? By consistently spending less than they
earn. This is the crux of the entire How to Save Money system.

Take a look at figure 1. The arrows pointing up show income, the ones pointing down show
expenditure. The picture on the left shows the balance of income and expenditure for a
person who may look wealthy, but is actually getting poorer every day – a person who spends
more than they earn; while the right hand picture shows someone on the path to real wealth –
a person who spends less than they earn.
Spend
Income

Income
Spend

Profit =
savings
Loss =
debt

Losing Money Making Money

Spending more than income Spending less than income

Figure 1 Two ways of life

The point is: it’s not how much you earn that is important; it’s how much you save. If you earn
$150,000 per year and spend $155,000 per year you are steadily becoming poorer; if you
earn $50,000 per year and spend $45,000 per year you are steadily becoming wealthier. The
question is: if it’s so obvious, why isn’t everyone becoming wealthier?

One of the reasons is that quite often people simply don’t know, on a month-by-month basis,
whether they are spending more or less than they earn. Stop a moment and think: do you
know precisely how much you earned and how much you spent last month? How about the
month before or the one before that? By following the How to Save Money program you will
always be able to answer that question. And once you know that you are in a position to make
the changes that will lead to wealth.

13
 How to Save Money

Pay attention to expenditure

As shown in the “Two ways of life” (figure 1) diagram above there are only four important
factors when it comes to money: income, expenditure, debt and savings. All financial books,
courses and advice focus on one (or more) of these areas. They are either about how to earn
more, how to spend less, how to reduce or how to grow and invest your savings. This book is
exclusively about the second of these: how to spend less.

Reducing expenditure seems to be a particularly profitable avenue for becoming wealthier

because:

1. It’s high return. If you save a dollar you are a dollar better off, immediately and
forever. There is no tax, no expense and little or no on-going effort associated with
2
not spending .

2. There is a lot of scope for making savings without any major changes in lifestyle.
There are many studies that show most people throw away a lot of money. For
3
example , Australians spend an estimated AU$10.5 bilion every year on goods they
never even use; in the USA people throw away 20% of all the food they buy at a cost
4
of US$43 billion; and a Canadian study found that spending on necessities like food,
shelter, water, electricity, fuel, household operation and health care increases with
income. People earning $65,000 per year spent $9000 per year more on these items
than those on a salary $30,000 per year. The point being: did they get full value for
that extra expenditure, or was it largely wasted on unnecessary luxury?

3. Reducing spending is easy. To earn more you have to do more and you have to work
at it day-in-day-out; to reduce spending all you have to do is less.

The question is how do you go about reducing your expenditure? That’s what this book is
about.

Save money regularly and consistently over many years

One of the characteristics of the Millionaires Next
Door (studied by Thomas Stanley and William Definitions  
Danko) was how they saved: a little and often was Interest – a financial term. Interest is the amount
the key. You don’t need to save large amounts of you get paid for lending your money to someone
else; or the amount someone else charges you
money to become wealthy over the long term. A for borrowing money from them. It is usually
little and often does the trick. As explained above, expressed as a percentage. For example, if you
this is not a book about investing, but at this stage earn 5% interest on a sum of $100 you will
it’s worth exploring why putting away a little and receive $5.
often can make you very wealthy over the long Compound interest – a financial term. Means
term. that the interest is paid or charged on both the
capital and the interest already paid or charged
on that capital.
The key is compound interest.
Capital – a financial term for a sum of money
you have saved or borrowed. Also called
To understand compound interest, think about Principal.
saving money at the bank. When you put a sum
of money (often called the “capital” or “principal”) Principal – the same thing as Capital.
into a savings account you receive interest; the
bank pays you for the use of your money. The interest you receive is a percentage of the
capital you’ve deposited. The bank usually calculates the interest it owes you each day, adds
it up and pays it to you periodically, for example once a month.

The way compounding works is this: each time you receive an interest payment, the bank
adds it to your original amount deposited (the capital or principal). The next time your interest
is worked out it is on the initial sum you deposited plus all the interest you’ve earned. For
example:

You deposit $1000. The interest rate is 10% per year.

After 1 year the bank pays you 10% of $1000, which is $100.

14
 How to Save Money

Your savings are now $1000 + $100 = $1100.

After the next year, the bank pays you 10% interest on $1100, so this year your interest is
$110.
Your savings are now $1100 + $110 = $1210.

This may not look that important at first, but over years, the compounding of interest can have
quite dramatic results. Here’s an illustration:

Imagine you have $1,000 to save. You put it in a savings account with the bank that pays
5
interest at 5% after tax has been deducted. Here’s how your money will grow:

The  effect  of  compounding  on  a  single  sum  

Amount saved: $1,000
Interest rate: 5%, calculated annually
6
Year Your savings
1 $ 1,050
5 $ 1,276
10 $ 1,629
20 $ 2,653
30 $ 4,322
Value ($)

40 $ 7,040
50 $ 11,467

Notice how at first the savings seem to

grow slowly; and that over the long
term growth accelerates. This type of
growth is called “exponential” and
explains how saving over the long
term can make you wealthy. Year

Now that you can appreciate the effect of compounding on a single sum, imagine what
happens if you save on a regular basis. For example, if you saved $5,000 every year and the
interest rate was consistently 5%, then your savings would grow as follows:

The  effect  of  compounding  on  regular  savings  

Amount saved each year: $5,000
Interest rate: 5%
7
Year Your savings
1 $ 5,250
5 $ 29,009
10 $ 66,033
Value ($)

20 $ 173,596
30 $ 348,803
40 $ 634,198
50 $ 1,099,076

Albert Einstein described compound

interest as "the eighth wonder of the
world. He who understands it, earns it ...
he who doesn't ... pays it."
Year
The point is that you can become wealthy by consistently saving and investing relatively
modest sums of money over long periods of time; exactly the behaviour that Stanley and
Danko found in the Millionaires Next Door. To do that you need to know whether you’re
saving or losing money each month. If you do the exercises in chapters 5 – 9 you will not only
know whether you are getting poorer or wealthier each month, you will also find ways to
reduce your losses, shift into saving and then increase the amount you save each month.

15
 How to Save Money

Given there is a simple way for people on even modest incomes to build wealth, the question
then becomes: do you really need to be a millionaire to be happy?

Know how much is enough

8
I read a story of a boy whose father was a busy and successful businessman; a man who
committed his life to earning money. The boy rarely saw his father and craved his company.
One day, quite unexpectedly, the father took his son fishing for the day. For the boy it was a
marvellous day; a memory that he treasured into adulthood. Many years later, his father died
suddenly of a heart attack. Throughout his life the father had kept a diary which the young
man found as he was sorting through his father’s things. He’d always wondered whether his
father had enjoyed that day’s fishing as much as he had. He went through the diaries and
found the entry for that day. Here’s what he read: “A complete waste of a day.”

It’s a horrible story.

You may recall from the overview section that when asked, “do you earn enough to meet your
needs?” nearly half of Australia’s wealthiest people answered “No”. As the author of the
study, Clive Hamilton, points out, in reality around only 4 or 5% of people in developed
nations don’t have enough to meet their needs. And yet, the people in the survey have a
genuine feeling of being deprived. The point being that sometimes we get caught up in
desires and keep pursuing material wealth even when it isn’t making us any happier.
9
This point has been explored in numerous studies that have shown that beyond a certain
level of income there is no link between money and happiness. For example, respected
10
psychologists Martin Seligman and Ed Diener state :

“…we want to emphasize here the divergence of economic indicators from indices of well-
being. For example, over the past 50 years, income has climbed steadily in the United States,
with the gross domestic product (GDP) per capita tripling, and yet life satisfaction has been
virtually flat. As can be seen in [the] Figure..., since World War II there has been a dramatic
divergence between real income (after taxes and inflation) and life satisfaction in the United
States.”

Figure 2 Reproduced from Ed Diener and Martin Seligman, Beyond Money: Towards and economy of well-being,
Psychological Science in the Public Interest 5, no. 1, July 2004, 10
11
In another study researchers asked people from several distinct groups to rate their life
satisfaction on a 7-point scale, with 7 being the most satisfied. As we’ve generally been lead
to believe, the super-wealthy (those on the Forbes list of richest Americans) were amongst

16
 How to Save Money

the most satisfied (they scored 5.8). Unfortunately, these billionaires only number 400 and the
chances of joining them are very remote.

More interestingly several other groups showed comparable scores:

The Pennsylvanian Amish 5.8

The Inuit people of Northern Greenland 5.9
The Masai tribes people of East Africa 5.7

Not exactly people associated with excessive material wealth. In fact as the author, David C.
Korten, points out the characteristics that define these three groups are:

• Strong communities.
• The equitable sharing of resources.
• Minimal economic distinctions between individuals.
• A simple life lived close to nature.

All of which seem much more attainable than joining the Forbes “elite”.

What seems clear is that increasing the wealth of extremely poor people does increase the
quality of their lives and happiness. However, it is equally clear that once a certain level of
material wealth has been achieved, more money does not buy more happiness. In fact
making money beyond that point could make people less happy if it distracts them from more
important things in life. Many people know this empirically, a sense that is backed up by
research. For example, psychologist Tim Kasser has conducted extensive studies into the link
between values, well-being and psychological health. His conclusions are:

“What stands out across the studies is a simple fact: people who strongly value the pursuit of
wealth and possessions report lower psychological well-being than those who are less
12
concerned with such aims.”

The question then is how much is enough to be happy? The studies quoted above point to an
annual income of around US$12,000 per person as being the amount beyond which more
money does not buy more happiness. This is, of course, an average over many studies, so it
will vary from person-to-person.

Wouldn’t it be useful to be able to know for yourself “how much is enough?” That is ultimately
what practising the techniques in this book will help you do. It won’t necessarily happen
immediately, but if you keep working with the techniques, you will become increasingly aware
of what “enoughness” means for you. By achieving that you could also become increasingly
aware of the things that are more important to you than material wealth.

Finally, given that material wealth, beyond a certain point, doesn’t appear to make us any
happier, it’s interesting to wonder: why do we keep pursuing materialistic goals?

Conscious control of behaviour may be an illusion

There’s a growing body of research that suggests the sense of being in control of much day-
to-day behaviour is an illusion. This is often referred to as the “automaticity of behaviour”. The
idea is that we often fall into patterns of automatic behaviour (i.e. habits), which are triggered
by things going on around us. These behaviours can occur outside conscious awareness,
although we do become conscious of them after the event. We then consciously construct a
story to explain the behaviour and make it feel voluntary. When confronted with this
information our tendency is to deny it happens to us (as you are probably doing right now).
13
Here are some examples :

• People eat up to 50% more food when they use a large plate rather than a small one.
This occurs even when they are educated about the effect. When asked if the amount
14
they’ve eaten has been influenced by their plate size: they deny it.

17
 How to Save Money

• Children exposed to TV adverts for snacks foods eat about 50% more snacks than a
control group exposed to non-food advertising. A similar affect is noted in adults.
Participants showed “no awareness or appreciation that the amount of food eaten
15
was influenced by the ads”.

• In a wine store, classical music played in the background primed customers to select
wines that were three times more expensive than if rock music was played.
16
Customers were unaware of the influence.

• The amount of money people put into an “honesty box” for tea and coffee in a
staffroom was influenced by the picture hanging on the wall near the box. Pictures of
staring eyes resulted in people putting in three times as much as when the picture
17
was of flowers.

There are many more examples. Of course, not all our behaviour is unconsciously driven. We
do have freewill and the ability to choose the course of our life. But, our conscious mind can
only process a limited amount of information and is easily distracted. This creates the
possibility that things going on around us will influence our behaviour. These influences may
be very subtle and hard to consciously notice, and yet they still have a significant influence on
our behaviour. It is, however, important to point out that even when our behaviour is
unconsciously driven, it will still lie within the bounds of what’s normal. For example, in one
18
study people were primed to think about old age (without knowing they’d been primed); as a
result they walked more slowly down a corridor than an un-primed control group. In other
words, their physical behaviour became “older”. However, as John Bargh, the researcher,
pointed out: none of them went out and bought a condo in Miami.

It’s also important to point out that this tendency to automatically respond in a particular way
is generally a very useful thing: if we had to re-learn everything we do each day and make a
decision about what to do every second of the day, we wouldn’t get much done. What’s
relevant is how easily can our behaviour be influenced and how they are being influenced.

In the context of How to Save Money, this unconscious influencing of our behaviour is
relevant because we are living in a culture that seems to value materialism and over-
19
consumption. By it’s very nature, living in this culture will influence us to adopt behaviours
aligned with materialism and consumption. For example, it has become “normal” to live in a
large house, own two or three cars, drive short distances, throw away increasingly large
amounts of non-renewable resources, eat food that has travelled thousands (or tens of
thousands) of kilometres and then throw away what doesn’t get eaten.

The good news is that it is possible to consciously influence our unconscious behaviour by
controlling aspects of our environment. For example, people eat up to 50% more when they
use a large plate, but this can be counteracted by consciously choosing to eat from a small
plate. By developing the habit of using a small plate (it’s not hard: give all the large ones
away), a person will unconsciously take and eat smaller portions (and, bizarrely, still feel as
full!)

In a similar vein the “How to save money” system described in this book is a way to influence
our patterns of consumption by tracking how we spend money. The tracking and questioning
of expenditure will bring into consciousness wasteful spending habits. Once these habits
become conscious, it becomes possible to design changes in our behaviour so as to live in a
different way. This “How to Save Money” process is, I believe, a way to install an alternative
set of values to “materialism”; a set of values based around frugality and the conservation of
resources.

Key  points  
• The “media” stereotype that wealth = materialism is false. Genuinely wealthy people
are often frugal.

• The path to sustainable financial freedom is to

18
 How to Save Money

o Spend less than you earn.

o Save small amounts of money consistently over a long period of time.

• Beyond a certain level, more material wealth does not bring more happiness. Used
over the long-term the techniques in this book can help you find that level and live
there. This is liberating.

• Our society favours materialistic values. There are many influences that push us
towards adopting these values.

• Materialistic values and behaviour do not lead to happiness.

• Materialistic values and behaviour do lead to unhappiness.

• Despite what we think, much of our behaviour appears to be unconsciously driven by

external stimuli.

• We can consciously choose to adopt a set of values that take us away from
materialism and towards a way of life that will make us happier. The simplest way to
adopt these values is to make them unconscious habits. The “How to save money”
system described in this book seems to be a way of doing that.

• Cultures with high levels of life satisfaction are characterised by the equitable sharing
of resources, strong community ties, simple living and connection to nature.

1
Many of the techniques used for modelling others’ success have been drawn from Neuro Linguistic Programming
(NLP).
2
In comparison when you earn a dollar, you actually take home less than a dollar (things like advertising for
business, tax, cost of materials, travel time and expense all eat into your income). This isn’t to say you shouldn’t look
for ways to earn more, just that reducing expenditure is more efficient.
3
Affluenza: when too much is never enough, Clive Hamilton and Richard Denniss
4
http://www.nelson.com/business/0176201408/pdf/WOB3.pdf
5
Depending on when and where you live an annual interest rate of 5% may look conservative or generous.
Personally I think 5% is on the good side, after taking into account tax, inflation and costs. Be dubious of financial
planners who promise 7 to 8% and actively avoid the one’s promising more than that – they are legalised “con men”.
See the bibliography for some recommended books on investing. You might also like to consider that the whole
concept of “economic growth” may well become meaningless if we are approaching natural limits to growth (see
bibliography). However, in these circumstances it makes even more sense to live well within your means and save
continuously and consistently.
6 t
To calculate compound interest on a single sum on an annual basis, use A=P(1+r) where A = value after t years; t =
years; P = present value; r = interest rate. From John A. Paulos A Mathematician Plays the Stock Market. Basic
Books. 2003
7
To calculate compound interest on regular savings, I use a spreadsheet. Email me if you’d like a copy.
8
The story comes from Hamilton and Denniss (ref 3 above)
9
See Happiness – Lessons from a new science by Richard Layard for a good overview of the studies on happiness
and it’s (dis)connection to wealth.
10
Ed Diener and Martin Seligman, Beyond Money: Towards and economy of well-being, Psychological Science in the
Public Interest 5, no. 1, July 2004, 10. Available on-line at www.psychologicalscience.org/pdf/pspi/pspi5_1.pdf
11
Found in David C. Korten, Agenda for a New Economy, page 98-99. Korten takes his data from the Seligman and
Diener publication mentioned above, but the cultural distinctions are his.
12
Tim Kasser “The High Price of Materialism”, p 5.
13
For many other examples and details Daniel Kahneman’s “Thinking, Fast and Slow” is recommended.
14
See Brian Wansink’s research at http://www.smallplatemovement.org/
15
”Priming Effects of Television Food Advertising on Eating Behavior”, Jennifer L. Harris, John A. Bargh, and Kelly D.
Brownell, Health Psychology (2009), Vol. 28, No. 4, 404 – 413.
Freely available at: http://www.yale.edu/acmelab/articles/Harris_Bargh_Brownell_Health_Psych.pdf
16
Charles Areni and David Kim, Advances in Consumer Research, (1993), 20, 333.
17
“Cues of being watched enhance cooperation in a real-world setting”, Melissa Bateson, Daniel Nettle and Gilbert
Roberts, Biol. Lett. 22 September 2006 vol. 2 no. 3 412-414 Abstract at: http://171.66.127.192/content/2/3/412.short
18
John A. Bargh, Mark Chen, Lara Burrows, Journal of Personality and Social Psychology, 1996, 71(2), 230-244.

19
 How to Save Money

Chapter  4:  Getting  motivated  

Chapter  Summary  
In this chapter: Set a goal
(Chapter 4)
• Setting a Goal.

This short chapter is an exercise to help you set a goal for using the How to Save Money
system. A goal is useful for getting off on the right foot and keeping motivated over the
coming weeks and months.

Follow the instructions to set a goal.

Write down your answers to each of the steps.

1. Why you want to change Write down the things you don’t like about your present
financial position? What are you dissatisfied about?

2. How you want things to be Imagine that you’ve learned the How to Save Money
tools and worked with them for 6 months. Think about how you would like your life to
be at this time. Try and visualise how your life will look. You can also imagine sounds
and feelings too, if you like. It’s like daydreaming. Then write down a sentence or two
that describes how you want things to be. This is your Goal.

3. First practical steps. Now think about some things you can do today to get started.
Where can you begin? What will be the first thing you will do? “Brainstorm” as many
“first steps” as you can. Then pick one of the steps and do it.

Now that you have set a goal you have begun this How to Save Money journey. You can use
the Goal you created at step 2 to keep yourself motivated over the coming months; and if at
any time you feel stuck, simply repeat step 3 to find your next practical step to keep you
moving.

Key  points  
• Setting a Goal is a good way to start your How to Save Money journey.

• You can use the Goal to remind yourself why this is important to you and to keep
yourself motivated over the coming months.

• If you find yourself stuck at some point you can generate more “practical steps” to
help you keep going.
 How to Save Money

Chapter  5:  Recording  

$ Income
Spend

Recording
Chapter  Summary   (Chapter 5)
In this chapter:

• Many small savings are better than occasional

large ones.

• The first step to making many small savings is to record

all your income and expenditure. How to do this is explained in detail.

• There is some advice on how to apply the process if you have a partner and/or family
that aren’t as committed to the process as you (in the “What if” section)

This chapter explains the first step in the How to Save Money process: recording all your
income and expenditure. By doing this step you gather information on how money flows in
your life. Once a month, you use this information in the Monthly Review (Chapter 7 - 9).

Why is Recording important?

How consciously do you shop? Are your spending patterns influenced by your surroundings?
Could it be that you are spending money on things you don’t really want without being aware
of it?
1
A research study published in Advances in Consumer Research (one wonders who’s
interests are being advanced?) showed that shoppers’ spending habits could be influenced by
their surroundings. The researchers used a small liquor store to find out how the music being
played in the store could influence peoples’ behaviour. Over a period of weeks they played
one of two types of music over the shop’s stereo system: Top 40 hits of that year or classical
music. They secretly observed and recorded the behaviour of people selecting and buying
wine in the store. In particular they noted how long a person looked for a bottle of wine, how
many bottles they considered, the number of bottles purchased and the average price per
bottle bought.

Of these four factors only one was influenced by the background music: the average price per
bottle bought. When classical music was playing the average price per bottle was three times
as much as when Top 40 hits were playing.

The researchers suggest that this happens because classical music is associated with being
wealthy and refined; and people usually believe that wealthy, refined people drink more
expensive wine. Hearing classical music, even though it’s in the background, seems to make
people think of themselves as being wealthy and refined, so they buy more expensive wine.

Two things stand out from this study; first of all, the people were not conscious of being
influenced. It seems most unlikely that anyone would consciously think to themselves: “oh,
classical music, I must buy some expensive wine.”

Secondly, although “three times as much” may sound a lot, in real terms it’s a relatively small
amount of money. On current prices the difference between, for example, an $8 and a $24
bottle of wine is just $16. That’s not exactly going to break the bank. However, it’s the
accumulation of small amounts like this, over long periods of time that make the difference. I
like this quote by Benjamin Franklin: “Beware of small expenses, a small leak will sink a great
ship.” Or to put a positive spin on it: plugging the small leaks can lead to a long and happy
voyage.

Understanding the importance of many small gains is at the heart of the How to Save Money
system. Certainly there may be areas of your life where you can make a large saving in one
hit; but these tend to be few and far between. The real savings come by finding the many

21
 How to Save Money

small leaks of your wealth and stopping them. The challenge is: given that at least some of
them may be out of your conscious awareness, how do you go about finding them? That’s
where Recording everything you spend and earn comes in.

The What of Recording

The first and most important step to identifying and stopping the many small leaks of your
wealth is:

Keep a written record of all your income and expenditure, right down to the last cent.

Sounds simple? It is.

You’ll notice that although the focus of this book

is getting to grips with expenditures, it is Definitions  
recommended that you also record your income. Recording – the process of keeping a written
This is because if you know both income and record of all your income and expenditure.
expenditure, you can work out if you’re making Spending Areas – Refers to the way you will
or losing money month-by-month. Which, in turn, sort and simplify your expenditures. This is
could influence where and by how much you explained in detail in the next chapter.
want to change the way you are spending.

So what do you need to know about Recording?

Separate personal money from self-employed or business money

If you’re self-employed or own your own business, then it is simplest to keep a separate set of
records for income and expenditure from your employment/business. Given that you probably
already keep records for tax purposes, this should be straightforward. The focus of the rest of
this book is on personal, not business, expenditures. You can still apply all the techniques to
business income and expenditure. You could significantly improve the profitability of your
business by tapping into the savings the How to Save Money tools will reveal.

Two types of expenditure

Broadly speaking people spend money in two ways:

1. Regular payments for things such as power, phone, rates, mortgage/rent etc. These
expenditures tend to be large, regular and entered into in a relatively conscious way.
They are often paid through direct debits, standing orders or cheques. In general, so
long as you are good at filling out your cheque stubs and/or have access to on-line or
paper bank statements, these items do not need to be recorded as soon as you make
them. It is enough to write them down at the end of each month when you are
bringing all your income and expenditure together for the Monthly Review.

2. Irregular spending, mostly shopping, be it on-line or by actually visiting a shop of

some description. This expenditure should be recorded immediately. Why
immediately? Think back over the last 24 hours; the chances are you spent some
money. Can you recall exactly how much you spent and on what? What about 2 or 3
days ago? Probably not. The sooner you write down what you have spent, the more
likely you are to do it and the more accurate it will be.

Use a notebook
A small paper notebook is the simplest way to keep your day-to-day record of expenditure
and income. At first, it’s a good idea to get into the habit of carrying this with you at all times.
Then it is immediately to hand whenever you spend or make money. If you like electronic
gadgets, you could do your recording electronically. However, the advantage of a paper
notebook is that it doesn’t have a battery, won’t crash and doesn’t take any time to start up.

22
 How to Save Money

Keep your receipts

It’s also useful to keep your receipts. They can be used to check you have recorded
everything at the end of each day. They may also be of use when you’re analysing your
spend during the Monthly Review. And, of course, they are useful when you want to return
purchases you have changed your mind about and want your money back.

Accuracy and consistency are important

When recording be accurate and be consistent. It’s like being an archer at the Olympics. To
win gold you need to hit the bull’s eye (accuracy) and do it repeatedly (consistency). When it
comes to recording, the same is true. By writing down exactly what you spend (accuracy) and
writing down absolutely everything you spend (consistency) you can win gold.

Keep a positive frame of mind

Be nice to yourself (and others). The point is to write down everything so that you can identify
your spending habits and do something about them (which may include accepting and
enjoying them). To achieve this it is helpful to have a “No blame, no shame” frame of mind (or
to put it in a more positive way “Accept what you find.”)

Leave the analysis of what you’re recording for later

If you try and analyse your spending as you are recording, you run the risk of getting diverted
into making changes before you have the whole picture. You might waste time and energy
making small gains and missing bigger opportunities. In the How to Save Money system the
analysis comes at the Monthly Review stage (Chapters 7 - 9).

How to do Recording
Follow these steps to get started on recording.

1. Obtain a small paper notebook.

2. On the first page of your notebook write the month at the top of the page. Draw
vertical lines so you have three columns down the page. Label them: Date, Item and
Amount (see figure 1 below).

3. Keep your notebook with you and every time you spend or earn money: write down
the date, what you spent money on or when the income came from and the amount.
To help you distinguish spend from income, put income in brackets, e.g. If you made
$56.60 from gardening, write: 21/12 Gardening ($56.60).

4. Keep doing this for the rest of the calendar month (you’ll probably use several pages
of the book).

5. At the end of the month, you will use the information you’ve recorded in your Monthly
Review (see Chapters 7 - 9).

6. Start the new month on a fresh page and repeat steps 2 to 5.

7. Keep doing this for at least six months.

That’s all there is to it. Here are the answers to some common questions that come up as
people practise Recording.

23
 How to Save Money

Figure 1 Example page from the notebook we use for Recording

What if? questions for Recording

I’ve started recording and noticed that when I go to the supermarket there are a lot of
different things on one receipt. Should I write each one down separately or just lump
them all together?
You can separate out items you specifically want to track. This may be because you already
know you spend a lot on them, or you realise they are a “spending habit” you want to change.
It is most efficient to separate them out now. If you don’t do it now, you will be doing it during
the Monthly Review, which means finding the receipt again.

For example, imagine you’ve been to the supermarket and spent $45.60. In that are some
things you want to pay special attention to (chocolate and wine) and other groceries you are
less interested in at the moment.

Here’s how you’d record the spend:

Date Item Amount

16/7 Groceries $32.40
16/7 Wine $11.00
16/7 Chocolate $2.20

This does require a bit of arithmetic to subtract the “separated out” items from the total
amount spent.

In the next chapter you are going to develop a list of your “Spending Areas” that will help you
identify the things you want to track separately from the things you can just lump together.

I’ve started recording and I’m feeling a bit overwhelmed by the amount of information,
what should I do?
Keep going. In the next two steps (Sorting your Spending and the Monthly Review) you learn
a way to filter the information you’re recording and make it manageable. And, it’s useful to

24
 How to Save Money

notice that this may be the first time you’ve become conscious of all the expenditures you
make. If this feels uncomfortable, then that could be a sign that you’re changing.

I forgot to take my notebook with me the other day and realise now I’ve missed several
expenditures. What should I do?
Relax. If you’ve kept receipts you should be able to work out what you spent. If you haven’t,
then it’s fine. This is just one month. In the long run it’s important to get into the habit of
recording everything, and the occasional missed item as you master the process is OK. Learn
from the experience and keep going.

I started recording, did a couple of weeks and then it got too much, I forgot to do it and
stopped. I feel like I’ve failed.
The thing to do in this case is to answer this question: How many times in your life have you
tried this before?

The answer is probably “never”. This is your first time. Like anything worth having in life, you
don’t always succeed first time and mistakes are OK if you treat them as an opportunity to
learn.

Think about how a movie is made. How many “takes” does it require to get each scene just
right? A lot more than one. Would it make sense, if every time there was a miss-take, for
every one on the set to assume they had failed, throw up their hands and walk off feeling
miserable. No! They do the only sensible thing: set everything back up and try again; a
mistake is an opportunity to improve.

I’ve already seen several areas where I can reduce my expenditure and start making
money by saving. Should I go ahead and do this?
No. I recommended that for the first month you just keep recording and don’t make any
changes. Why? I have a friend who lives in an old house that’s in need of repair. One day he
noticed that the bedroom windowsill was rotting away. He spent many hours carefully
removing the old sill; cutting and fitting a new one; sanding and painting it until it looked
perfect. In the meantime, because he was so busy on the windowsill, he failed to notice that
the roof was leaking and one day the ceiling fell in. It’s much more useful to first of all have an
overview of everything that you could change and then focus your energies on the places that
will have the greatest impact.

I like to take my grandchildren out for ice cream and treats. I’m concerned that they will
think I’m mean if I get out my notebook and write down the money I’ve just spent on
them…
There are a couple of things to consider here. First of all, maybe it’s meaner to deny them the
opportunity to learn how to look after money. People do what they see others doing, not what
they’re told to do. By writing down the expenditure you’re giving your grandchildren a very
valuable gift: you’re modelling financial intelligence for them.

Secondly, the question presupposes that just because I write something down, I will stop
making that expenditure in the future. This is not true. If I get value and pleasure from an
expenditure then I keep doing it. The point of the How to Save Money process is not to give
up the things you love; it’s to find the expenditures where you don’t get full value and change
those. Which means you have more resources to do the things you love, like treat your
grandchildren.

I’m really taken with this process and want to make it work in my life. However, other
people in my family, that I share money with, don’t think it’s worth doing. How can I
convince them it’s worth doing?
You have a great opportunity. First of all, stop trying to convince them of anything. Simply
focus only learning and using the process on the income and expenditure that applies directly
to you. That way you give yourself time and space to learn the processes involved and to
prove that you can increase your wealth by comfortably making changes. Other members of
your family will notice this and their interest will increase. After all, by working the How to

25
 How to Save Money

Save Money system you are likely to enjoy the equivalent of a 20% tax free pay rise for a few
hours effort each month. Who could ignore that once they’ve seen it work for you?

Then, once you have mastered the process and demonstrated what’s possible, you should
find that those around you either naturally follow your lead, or at least are much more open to
your suggestions about how to make the process work for you as a family.

I have some expenditure that I’m a little embarrassed about and I don’t want to show to
my partner, what should I do?
The chances are that if you’re embarrassed about admitting to a spend, then it’s a habit that
may not be serving you well. So, this is exactly the sort of thing you should be recording.
Ideally, in a relationship all expenditure should be “in the open”, but if you really can’t bring
yourself to do that yet, then by all means keep your own private record. Record, analyse and
change your “private” expenditures in exactly the same way as usual.

Key  points  
• Many small savings are more useful than a few large ones.

• Write down everything you spend and earn.

• Regular expenditures (e.g. power and phone bills, rates, rent or mortgage) can
usually be recorded at the end of the month from your bank and credit card
statements.

• Immediately write down all other expenditures in a note book that you carry with you
at all times.

• Keep records of business/self-employed and personal money separate.

• Keep your receipts.

• Record accurately and consistently.

• Be nice to yourself and others; just write down everything you spend and earn. Leave
the analysis for later.

• Don’t try and coerce other people in your life into following the process. Just get on
with it for yourself and lead by example.

1
This is the same study described in Chapter 3. Charles Areni and David Kim, Advances in Consumer Research,
(1993), 20, 33

26
 How to Save Money

Chapter  6:  Sorting  your  Spending   Food

Travel
Chapter  Summary   Sorting your
House
In this chapter: Spending
Holiday (Chapter 6)
• How to organise your income and expenditure so
you can spot trends and find areas to make Luxuries
changes in the Monthly Review.

• The focus is on Personal Expenditure.

• Simplify expenditures by grouping similar things together.

The previous section was about keeping a written record of all your income and expenditure.
This section is about how to sort and organise the information you gather. This is an essential
precursor to the Monthly Review. This step is done once, when you first set up the How to
Save Money system. The exercise takes about an hour.

Why Sorting your Spending is important?

Take a moment to think about the flow of money in your life in the last month. How much did
you earn? For most people this is relatively easy to say, because they get paid monthly or
weekly. What about your spending though, what did you spend money on last month? Once
you start thinking about, you probably begin to realise how extensive the list is. Have you
considered food and drink (both at home and when you’re out); shelter (both paying for it and
maintaining it); clothing; transport; heating; lighting; your phone and internet bills; recreation;
gifts and education? How many individual items are there? Probably hundreds. It’s a lot of
stuff. How are you ever going to make sense of all this information?

This is what this section is about. Grouping similar things together and thinking of them as a
single thing simplifies the information you gather. It’s a bit like the way a library is organised. If
the books were put on the shelves in the order they came in, then it would be very hard to find
anything. But libraries aren’t organised that way. They have separate sections for fiction, non-
fiction, reference and periodicals. Within each
section the books are arranged in a specific way Definitions  
(e.g. alphabetically or grouped into subjects). For
Sorting your Spending – a process for
example, all the books on gardening are in one grouping and sorting your income and
place. This makes it easy to find what you want. expenditure so as to help you get to grips with
the flow of money in your life.
You can do a similar thing for money and hence Business money – the income and expenses
make it simple to get an overview of everything associated with self-employment/business.
you spend and earn in a month. This makes it Includes everything that goes on your tax return.
easier to focus in on particular spending patterns Personal money – the income and expenditure
and make changes that will save you money. associated with your day-to-day life. Personal
money is everything that doesn’t go on your tax
return.
The what of Sorting your Income – money that comes into your life, for
Spending example wages, dividends, gifts, rent, loose
change you find in the street etc.
Think back to the way the collection of materials
in a library is organised. There are different levels Expenditure – all the money you spend.
of organisation. At the broadest level materials General Spending Area – a broad area of
may be organised into Fiction, Non-fiction, expenditure, for example “Food and drink” or
“Transportation”.
Reference and Periodicals (see figure 1 below).
Then within each section there are sub-divisions. Detailed Spending Area – a smaller grouping
For example, Fiction is usually divided into Adult, under a General Spending Area that catches the
detail of expenditure.
Large Print and Children’s sections; and then the
books are organised alphabetically in each. Every

27
 How to Save Money

item in the library has a place it can be shelved.

The same principal is used to organise your money. You can create a series of divisions that
will ensure you have a place for all of your income and expenditure. At the broadest level
most people will use the same divisions; and as you get into the detail, you can personalise
the divisions to reflect your lifestyle and interests.

Business and Personal

If you run your own business or are self-employed then the first division is to distinguish
between your business and your personal income and expenditure. This distinction is useful
to make because you will probably operate your business and personal lives in very different
ways; for example, the criteria you use for working out if you got good value for expenditure
will probably be different between the business and personal arenas. Business income and
expenditure should include anything associated with running your business or self-
employment activity. Personal income and expenditure is everything else. One way to sort out
which is which is to think about your tax return: if you include any income or expenditure on
your tax return, then it falls into your Business category; otherwise it’s in the Personal box.

For example, say you run a café. Money you spend on stock, rent and power for your
premises, the cost of travel to buy stock and your work clothes would all fall into Business
Expenditure. Your lunch and the cost of travel to your premises at the start and finish of each
day fall into Personal Expenditure.

Income and Expenditure

The second level of division is to separate income and expenditure. In the How to Save
Money system, knowing your income is important so that you can work out if you are making
or losing money each month. Beyond that, the focus of this system is on expenditure, and in
particular on personal expenditure. The tools can also be usefully applied to business

28
 How to Save Money

expenditure as well. However, for the purposes of this book all examples and discussion will
focus on the Personal realm. This is for two reasons: firstly most of our own experience with
the system is in the area of making changes to personal expenditure; and secondly: everyone
has personal expenditure, but not everyone has business expenditure.

Organising Personal Expenditure

As explained before, Personal Expenditure can include a lot of different items. One of the
features of the human brain is that it is best at consciously processing between five and nine
things at any one time (You may have heard this referred to as “the magic number seven,
1
plus or minus two” ). Clearly, all the things you spend money on in a month greatly exceeds
somewhere between five and nine, so we need someway of organising all this information to
make it manageable.

To achieve this, we’ll use two levels for organising expenditure. A top level, which we’ll call
General Spending Areas; and below that, a second level that we’ll call Detailed Spending
Areas. The Detailed Spending Areas are the most important part: each month you will assign
each expenditure you make to a Detailed Spending Area and it is the total expenditure in
each Detailed Spending Area that you will use to identify spending patterns. In this way,
related expenditures are grouped together and considered as one thing. For example: if you
eat well, then you probably buy a wide variety of fruit and vegetables each month. It makes
sense to group all these expenditures together and think about them as a whole. It’s quick
and easy to consider the value of, say, “$134.60 for fruit and veg”, rather than going through
each individual fruit and veg purchase.

So as to work in harmony with your brain, and to keep things manageable, you should have
between five and nine General Spending Areas. Then for each General Spending Area you
should have between five and nine Detailed Spending Areas. This gives you somewhere
between twenty-five (five times five) and eighty-one (nine times nine) Detailed Spending
Areas in total. This should be more than enough to cover all of your expenditure.

The beauty of this system is that you can tailor it to meet your needs. If you like detail and
have a busy life with lots of different expenditures, then you can have lots of Detailed
Spending Areas. If on the other hand your life is simple and/or you prefer to work at a more
general level, then you can have fewer Detailed Spending Areas.

Figure 4 shows how the General and Detailed Spending Areas fit together.

29
 How to Save Money

All your income and

expenditure

Business/Self-employed Personal

Expenditure Income

General Spending
Areas
Food Housing Travel Communicatio Personal Hobbies Health
n (clothes etc.)

Staples

Meat

Detailed Spending Sugary stuff

Areas for “Food” Dairy products

Meals out

Alcohol

Dinner parties

Miscellaneous

Figure 4 Sorting your income and expenditure – showing possible General Spending Areas
and possible Detailed Spending Areas for “Food” (examples are for illustration only, your own
labels will be different and personal to you)

The examples are for illustration only. It is important to develop the list for yourself: it is at this
stage that you personalise the How to Save Money tools. In selecting your own General and
Detailed Spending Areas, you define which areas of expenditure you want to focus on. There
are few pointers to doing this that are important to keep in mind:

• Your list of Detailed Spending Areas should cover all of your expenditure. The How to
Save Money system works by including absolutely everything you spend and earn.

• Your General and Detailed Spending Areas are not written in stone; they can be
modified as you gain experience with the system.

• It is sometimes useful to have a Detailed Spending Area (or maybe even a General
Spending Area) labelled something like “Miscellaneous” or “Other”. This can be used
to catch expenditures that don’t fit elsewhere.

• Rigorously stick to using only five to nine General Spending Areas and five to nine
Detailed Spending Areas for each General Spending Areas.

• At first glance setting up Spending Areas can look like a lot of work. In practise it’s
much simpler to do than it is to explain!

Introducing the Monthly Review Worksheet

Once you have worked out your Spending Areas and, if appropriate, Income Areas, the next
step is to write them onto the Monthly Review Worksheet. As the name suggests, this
worksheet is used in the Monthly Review (chapters 7 – 9). An example Worksheet is included
in the How to section of this chapter.

30
 How to Save Money

How to develop your own set of General and Detailed

Spending Areas
Here’s a step-by-step process for working out your own Spending Areas. This exercise could
take up to an hour to do.

1. Find a quiet place. Have some paper and a pen handy. Some coloured pens (such as
felt tip pens) or pencils are also useful but are not essential. Start by thinking about
your personal expenditure. Cast your mind back over the last month and think about
all the ways you may have spent money. To help do this try recalling the things you
have been doing and then notice where you spent money to do them. Let your mind
wander, at this stage you’re priming your brain.

2. Then, when you feel ready, start writing down all the ways you’ve spent money. Any
level of detail will do, just write down everything that comes to mind, you’ll sort it all
out in the next step. Sometimes this sort of process is referred to as “brainstorming”.

3. Once the flow of ideas begins to slow down, stop writing and review what you’ve
written. You are aiming to identify between five and nine General Spending Areas.
Remember these General Spending Areas need to cover all of your expenditure. To
do this they will need to be broad in scope. For example, “Food and drink” is more
useful than “Bread”. Coloured pens can be very useful at this stage. Pick a colour and
use it to mark all items that are similar. One way to come up with labels that have a
broad scope is to pick and item and ask yourself “what is this an example of?” and/or
“what larger thing is this a part of?”

4. Once you have a list of General Spending Areas: take them one at a time and
develop between five and nine Detailed Spending Areas. Go back to the original
(brainstormed) page of expenditure and review all the spending that might fall into a
General Spending Area. Look for Detailed Spending Areas that will encompass
everything you spend. Remember, it’s OK to have a “miscellaneous” or “Other”
Detailed Spending Area to catch bits and pieces that don’t fit elsewhere. Also,
develop Detailed Spending Areas that help you focus on the areas where you
intuitively think you might want to save money. For example, if you know you
regularly buy takeaway coffee from a café, and would like to know how much that is
costing you, then have a Detailed Spending Area called “Takeaway coffee”.

5. Once you have a set of General and Detailed Spending Areas, put them into the
Monthly Review Worksheet (see the example below). A blank, template table is
included in the book of this book and is also available on-line.

There is an example of General and Detailed pending Areas recorded in the Monthly Review
Worksheet on the next page.

31
 How to Save Money

An example of General and Detailed Spending Areas recorded in a

Monthly Review Worksheet
Here is an example Monthly Review Worksheet with General and Detailed Spending Areas.
Note that the use of the columns headed “Income”, “Expenditure”, “Value?”, “Values?” and
“Change?” is explained in the next two chapters. A blank Monthly Review Worksheet is
included in Appendix 1 and a Word version is available on-line.

General Detailed Spending Area Income Expenditure Value? Values? Change?

Spending Area
Food Staples
Chocolate
Alcohol
Coffee bought out
Meat
Dairy
Sugary stuff
Travel Car – repairs & maintenance
Car – insurance
Car – Petrol
Bikes
Trains & busses
Air
Communications Postage
Mobiles
Skype
Phone card
Printing
Internet
Misc.
Personal Clothes etc.
Toiletries
Health (e.g. dentist)
Books/library
Gifts
Misc.
House Mortgage
Rates
Power
Water
Repairs and maintenance – house
Repairs and maintenance –garden
Misc.
Holidays Accommodation
Food
Travel
Sites
Misc.
Entertainment Yoga
Cinema
Theatre, galleries etc
CDs
Books
Drinks out
Meals out
Misc.
Miscellaneous Miscellaneous

32
 How to Save Money

What if? questions for Sorting your Spending

By only using General and Detailed Spending Areas I end up lumping lots of things
together. I’m worried I’m missing important expenditures and am thinking of adding
some extra levels below the Detailed Spending Areas. Is that OK?
The aim of limiting General and Detailed Spending Areas to between five and nine each is to
keep the process achievable. The risk with getting into more and more detail is that you could
spend a lot of time focusing in on one area while missing other expenditures that are more
important. It’s best to keep to the system as described here. As you get used to the system
and make changes, you can always modify the structure of your Spending Areas.

Why would I want to change the General and Detailed Spending Areas at a later date?
Once you gain some experience of using the How to Save Money tools you may find there
are several reasons for modifying your Spending Areas. For example:

• You may have missed a particular expenditure when you first did the exercise above.

• You might find the expenditure in a particular Detailed Spending Areas is very large
and want to get a more detailed breakdown of that spend. In this case you might
divide the spend over two new Detailed Spending Areas.

• You might make significant changes in a particular Detailed Spending Area (or even a
General Spending Area) and find that it is no longer as important.

I’ve got several “miscellaneous” Detailed Spending Areas for capturing “other”
expenditures. Is that OK?
Yes, miscellaneous Detailed Spending Areas can be very helpful for capturing all of your
expenditure. This is especially true when you have one-off or occasional expenditures. If
during your Monthly Reviews, you regularly find that the total expenditure in a miscellaneous
Detailed Spending Areas is large then you might want to review how you’re dividing up your
expenditure in that area.

I’m trying to do the exercise and it’s getting a bit overwhelming. There just seem to be
too many Spending Areas to think about. What should I do?
First of all: relax. The How to Save Money tools work over months; you have plenty of time to
think about this and work out how to do it. For now, the best thing to do is work at a more
generalised level. For example, you could just work out your General Spending Areas and
use only those for a month or two until you get used to the process. Or you could do the
General Spending Areas and just a few Detailed Spending Areas. One of the beauties of this
system is that you can choose to work at a level of detail that is comfortable for you.

Can I have fewer than five Detailed Spending Areas in a General Spending Areas?
Of course. From our own experience: as we worked with these tools our lifestyle got simpler
and simpler. Eventually certain Detailed and the General Spending Areas became irrelevant.
(e.g. the Detailed Spending Areas: “Coffee out” and “Meals out” both disappeared very
quickly; after a longer time, the General Spending areas “House”, “Holidays” and
“Entertainment” were moved on.) If you find you no longer spend anything in a certain
Detailed Spending Area (or General Spending Area) then it’s OK to let it go (and give yourself
a pat on the back!)

Would you recommend using the same system to organise personal income as well?
Yes, if you have a lot of different sources of income and you want some way of finding out
how much each source gives you. You might decide on only having General Income Areas,
and you can add Detailed Income Areas as well, if that helps you.

Can I use the system for my business/self-employment?

Yes, if you are self-employed or own a business, you can repeat the process for the
expenditure, and possibly the income, of your business. It’s quite likely that you are already
using some system of recording and categorising income and expenditure in your business. If
so, use what you already have; there’s no point in re-inventing the wheel. If you don’t already
keep such records, then working through this procedure for your business will help make your

33
 How to Save Money

accounts and tax returns much simpler to do; and, going on and applying the remainder of the
How to Save Money tools will probably make your business more profitable too.

Key  points  
• Sorting your Spending involves grouping similar things together and thinking of them
as a single thing. The system you create here is used in the Monthly Review step.

• The first two levels of organisation are to separate business and personal money; and
then separate income and expenditure for each.

• The focus of this book is the Personal Expenditure category.

• Personal Expenditure is further divided into between five and nine General Spending
Areas.

• Each General Spending Area is further divided into between five to nine Detailed
Spending Areas.

• The General and Detailed Spending Areas should cover all of your personal
expenditure.

• The General and Detailed Spending Areas can be changed as you learn how to use
the system.

1
George Miller coined the phrase in the 1960’s. Wikipedia has a good article on his work and a link to
the original paper:
ttp://en.wikipedia.org/wiki/The_Magical_Number_Seven,_Plus_or_Minus_Two

34
 How to Save Money

Chapters  7  to  9:  The  Monthly  Review  

In previous How to Save Money tools you have:

• Got into the habit of writing down everything you

spend and earn (Chapter 5)

• Worked out how to group and sort all your

income and expenditure. In particular, for your
expenditure you have developed a set of
General and Detailed Spending Areas (Chapter
6).

The Monthly Review draws these two elements together. As the name suggests, this is a
monthly process consisting of three steps. Each of the steps has it’s own chapter:

1. Working out your monthly income and expenditure (Chapter 7)

2. Reviewing your expenditure (Chapter 8)

3. Making changes (Chapter 9)

 How to Save Money

Chapter  7:  Working  out  your  

Monthly Review 1
monthly  income  and   Income and spend
expenditure   (Chapter 7)

Chapter  Summary  
In this chapter:

• The first step of the Monthly Review.

• Information gathered by Recording (Chapter 5) is drawn together.

• Each expenditure is assigned to a Detailed Spending Area (developed in Sorting your

Spending, Chapter 6).

• The same is done for income.

• Totals of expenditure and income are worked out.

In this first step of the Monthly Review you gather together all your income and expenditure;
sort the expenditure into your General and Detailed Spending Areas and calculate the totals
for each Detailed Spending Area. You will also calculate your total income and total
expenditure for the month.

Why is Working out your Monthly Spend/Income Important?

Imagine a 1000 piece jigsaw puzzle. We want to complete the puzzle. The first thing to do is
open the box and tip the pieces out. At first it seems like a mess, a jumble of unrelated
pieces; there is no order and no patterns are visible. We start by sorting the pieces out:
finding the edges and corners; putting similar looking pieces together; finding the parts that fit
together. As you do this, patterns start to emerge and pieces begin to fall into place. Then
whole sections come together and finally the big picture becomes clear.

All the information you have been gathering over the month is like the pieces of the jigsaw. At
first they seem jumbled and unconnected; it’s hard to put everything together and get the big
picture. This first step of the Monthly Review is like sorting out the pieces of the jigsaw. By
ordering and grouping your income and expenditure it becomes manageable; this helps you
get a grip on how money flows in your life, tunes out the noise and highlights your spending
patterns. Which puts you in a position to take action and make changes that will build your
wealth.

The What of Working out your Monthly Totals

It is simplest to do a Monthly Review for a calendar month. In practise it is best to do the
Review within a week of the end of the month. For example, do January’s monthly review
sometime in the first week of February.

The first part of working out your monthly income and expenditures is to gather all your
financial information together. At the risk of repetition: it is important to gather information on
everything you spent or earned in the month.

For your personal income and expenditure there are likely to be two main sources of
information:

• The notebook in which you’ve been writing down your income and expenditure. This
should cover most of the money in your life including all the day-to-day expenditure.

36
 How to Save Money

• Bank statements that contain the details

of regular payments by standing orders Definitions  
and direct credits (things such as rent, General Spending Area – the highest level of
mortgage, utility bills etc.) If you use a detail for grouping and sorting up your income
and expenditure (see chapter 6)
credit card, you will want to have your
credit card statement too. All your credit Detailed Spending Area – the second, and
card expenditure should be recorded in lowest, level of detail for grouping and sorting
your expenditure and income.
your Notebook, but it’s handy to
crosscheck. If you have any other records Monthly Review Worksheet – a table of
of financial transactions these should be General and Detailed Spending Areas (and
Income Areas if you are using them) created in
gathered together as well. You might also chapter 6. Has columns labelled “Income”,
need some or all of your receipts. “Expenditure”, “Got value?”, “Meets values?” and
“Changes”.
If you are self-employed or run your own business Records – all your information on income and
then you will need to draw on your business expenditure. It includes the book you’ve been
records to gather the information you need for the recording day-to-day income and expenditure in,
bank statements, credit card bills, any other
self-employed/business part of your Monthly financial records for the month and receipts.
Review.

Once you have all your information together you can begin the process of organising it. There
are detailed instructions on this in the “how to” section below. The overall process is to use
the set of Spending Areas you developed in the Sorting your Spending section (chapter 6).
The money splits up as follows:

1. if you are self-employed or have a business, you will separate out business and
personal money.

2. Separate income and expenditure.

3. Assign each expenditure to one of the Detailed Spending Areas.

Here are some points to take note of:

• This process takes some time and effort, especially if you spend a lot of money or
generate income from several different sources.

• Your first Monthly Review will probably take the most time and be the most
challenging of any you’ll do.

• Approach the Monthly Review with an attitude of acceptance and don’t rush into any
changes. The Review is designed to reveal where your money goes (and where it
comes from) and in particular to highlight spending habits that may not be serving you
so well. These are what they are; accept them, follow the process and make changes
when you’re ready.

The detailed step-by-step How to section is on the next page.

37
 How to Save Money

How to work out your Monthly Income and Expenditure

As mentioned above do each Monthly Review in the first week of the next month (e.g.
January’s review is done in the first week of February). Allow several hours to complete the
process; or spread it over several sessions if it’s taking a long time. Try and find a quiet time
and minimise possible disturbances. If your life is busy then, obviously, plan this time in
advance.

Materials you need

Print, write out or open on your computer a Monthly Review Worksheet. This is a table with all
your General and Detailed Spending Areas on it and five additional columns that are labelled:

• Expenditure
• Income
• Got value?
• Meets Values?
• Changes

A blank Monthly Review Worksheet is included in Appendix 1 and a Word version is available
on-line. The first part of the Monthly Review process makes use of the income and
expenditure columns of the Worksheet. In subsequent parts of the Monthly Review you will
use the remaining three columns.

It can also be useful to have some scrap paper, a highlighter or felt tip pen and a calculator
handy.

Gather your records of everything you spent and earned in the month. Use the notebook
you’ve recorded everything in and bank statements for direct credits. It is useful to have any
other financial records (such as receipts, credit card statements, income statements from
things like rental property and dividends) to hand as well; these are useful for cross-checking
your records of income and expenditure.

The process
1. Start with your expenditure. Begin with the first Detailed Spending Area on your
Monthly Review Worksheet. Go through your notebook and find all the expenditures
that fall into this first Detailed Spending Area and add them up. In your notebook,
cross off each expenditure as you add it up. (Crossing off is important; it can save a
lot of frustration.) Then go through your bank statement and any other records you
might have; add any further expenditures that fall into the first Detailed Spending
Area. Cross items off as you add them in. Once you have a total for the first Detailed
Spending Area, write it into the corresponding “Expenditure” box on the Worksheet.

2. Repeat step one for the next Detailed Spending Area and so on until you’ve been
through every Detailed Spending Area (This may take some time!).

3. Repeat step one for all of your income, except you obviously add the totals to Income
Areas.

4. Now total up all your expenditure and all your income; write the total at the bottom of
each column.

That’s it. It’s interesting at this stage to compare your Total Income and Total Expenditure to
see if you are spending more or less than you earn (more on what to do about it is in the
“What if?” section below.)

38
 How to Save Money

What if? Questions for Working out Monthly Income and

Expenditure
This seems like a lot of work, is there anything I can do to make it easier?
Several things will make the process simpler.

• Making sure you have all your records (your notebook, all your bank statements etc)
handy and tidy at the start can save time.

• As explained in the Recording section it helps to separate out some Detailed

Spending Area items as you are writing things in your Notebook. For example, if you
shop in a supermarket everything will be on one receipt. But within that there may be
some things that belong in different Detailed Spending Areas. Separating them out
when you write the receipt into your notebook will greatly simplify the Monthly Review
process. To illustrate: you spend $54.20 in the supermarket. Of that you know that
the $10 you spent on wine, the $6.50 on chocolate, $5.60 on stamps all fall into a
particular Detailed Spending Area and the rest is lumped together in the Detailed
Spending Area called “staples” (e.g. flour, pasta, milk and what have you.) You could
write in your Notebook like this:

Date Item Spend

rd
23 June Supermarket $54.20

This will mean more time during your monthly review because you’ll need to find the
receipt and check for what belongs in which Detailed Spending Area. Or you can
write it into your notebook like this:

Date Item Spend

23rd June Supermarket – staples $32.10
– alcohol $10.00
– chocolate $6.50
– stamps $5.60

This requires a bit of arithmetic in the supermarket (never hurt anyone) and is much
quicker when you come to the Monthly Review.

• If you have a calculator with an “add to memory” function (often written as “M+”) you
can use it to keep your running total for a Detailed Spending Area. This is the most
efficient way of adding up a long list of items on a calculator. Remember to clear the
memory when you move to the next Detailed Spending Area. (Yes, I know this is
obvious, but I’ve been there and it’s a little annoying if you don’t remember to do it.)

• It may be useful to think about how you use your time during this part of the Monthly
Review. It’s better to plan how long you will work for and give yourself regular breaks.
For example you might decide to do 40 minutes of work with a 10 minute break. This
will help maintain your energy levels and concentration.

• Buy less each month (!).

Is it better to use paper or a spreadsheet on the computer?

That’s up to you; both have advantages. Paper is simple, easy to access if you want to check
something later, easy to glance over and doesn’t crash. A computer spreadsheet does the
maths for you and is reliable at adding up. There may be other advantages too, depending on
whether you like to do “in depth” analysis of numbers. For the purposes of the How to Save
Money system: paper is perfect.

Now I have my income and expenditure for the month what can I do with it?

39
 How to Save Money

If spending is more than income (i.e. you lost money in the month) then obviously you might
want to take immediate action to either reduce your spending or increase your income.
Reducing spending is, in my opinion, by far the quickest and easiest way of doing that. In the
remaining How to Save Money steps you will analyse your spending and find the places you
can easily make changes to reduce spending and start building wealth.

If income is more than expenditure then this is good news. One of the aims of the How to
Save Money system is to do this consistently month after month. You should still proceed with
the next step in the Monthly Review. This will help you identify places you may be spending
but not getting good value for your money. Finding and changing these areas will help you
save even more. In the long run this will increase your wealth and create opportunities for
changing your lifestyle if you wish.

Should I keep a track of my income and expenditure from month-to-month?

Definitely. Use a graph with “Money” on the vertical axis and “Months” on the horizontal one.
Then each month plot points for your income and expenditure. As the months pass join the
dots to create a picture of changes in your income and expenditure (see figure 1). The graph
is useful because it’s motivating to notice expenditure dropping month-by-month as you apply
the system and as way of revealing long-term patterns of expenditure.

Figure 1 Tracking income and expenditure on a graph

Key  points  
• It’s best to do the Monthly Review for a calendar month.

• Do the Monthly Review a few days into the next month (e.g. January’s review in the
first week of February.).

• Gather all your records and a blank Monthly Review Worksheet before you start.

• Put aside at least half a day for your first Monthly Review. Find a quiet place where
you won’t be interrupted. Take regular breaks.

• Work out your total expenditure for each Detailed Spending Area on your Monthly
Review Worksheet.

• Once an expenditure has been assigned to a Detailed Spending Area: put a cross
through it in your records.

• Work out your income on your Monthly Review Worksheet.

• Total up your income and expenditure for the month.

40
 How to Save Money

Chapter  8:  Reviewing  your  Expenditure  

Chapter  Summary  
In this chapter:
? x2 Monthly
Review 2
Two questions
• The two questions you ask of the expenditure (Chapter 8)
in each and every Detailed Spending Area.

• Doing that highlights dissatisfaction with current spending

patters and creates motivation for change.

In the first part of the Monthly Review (Chapter 7) you gathered together all your income and
expenditure and grouped similar expenditures together in the Detailed Spending Areas. The
next stage is to consider your expenditures to check you got value for money and that they
are aligned with how you want to live. Your answers will lead naturally to the final stage of the
Monthly Review: Making Changes.

Why Reviewing your Expenditure is important?

Reviewing your expenditure will help you identify places where you are wasting money.
These are areas where you are likely to be dissatisfied or uneasy with the value you got for
your money, or that are not aligned with how you want to live your life. These areas are useful
to know because the unease caused by dissatisfaction is the first step towards making a
change. Seventeenth century philosopher John Locke stated it like this:

“The motive of change is always some uneasiness: nothing sets us upon the
change of a state or upon any new action but some uneasiness. This is the
1
great motive that works upon the mind to put it upon action.”

More recently, the importance of dissatisfaction in change has been described in a

2
management tool called the “Change Equation”. This says that for a change to be
successful:

D x V x F must exceed R

D = Dissatisfaction with how things are

V = Vision of the future - how things will be after the change
F = First practical steps towards change
R = Resistance to change

The equation suggests that if D, V or F are zero, then the change won’t happen; and that the
bigger they are, the more likely it is that a change will be successful.

Obviously, The Change Equation is not completely true; real life is never going to be that
simple. However, it seems to be a good enough approximation of real life to be useful when
thinking about change.

The Change Equation is explored in more detail in the next chapter. For now it is useful to
appreciate that dissatisfaction with how things are is a key element in change; and that
reviewing your expenditure is a way of identifying areas of your spending that bring you little
or no satisfaction.
 How to Save Money

What you need to know about Reviewing your Expenditure

Reviewing your expenditure involves asking
yourself two questions of every Detailed Definitions  
Spending Area. The questions are: Change Equation – a management tool for
thinking about change. States that for change to
occur D x V x F > R.
Question1: “Did I get full value for this
expenditure?” D = Dissatisfaction with how things are – what
you’re unhappy about
Question 2: “Does the expenditure meet my V = Vision of the future – how you’d like things to
Values?” be instead
F = First practical steps – what you’re going to
To be clear, in question one value means “value do to reach your Vision
for money”; in question two “Values” means the R = Resistance to change – the things stopping
things you consider important in life. you from changing.
Detailed Spending Area – the second, and
The questions should be answered “Yes” or lowest, level of detail for grouping and sorting
“No”. Sometimes it isn’t immediately obvious your expenditure and income.
what your answer to the question is. If you can’t Monthly Review Sheet – a table of General and
decide: either take a guess, or put “No”. Detailed Spending Areas (and Income Areas if
you are using them) created in chapter 6. Has
Each question is explained in more detail below. columns labelled “Income”, “Expenditure”, “Got
value?”, “Meets values?” and “Changes”.
Value – meaning worth, as in “value for money”.
Question1: “Did I get full value for Used in the question “Did I get full value for this
this expenditure?” expenditure?”
In this question “value” is being used as in Values – the things which are important to you
“value for money”. Good value might include in life. Used in the question “Does this
expenditure meet my Values?”
things such as:

• How durable (long lasting) the thing you paid for is.

• A sense of enjoyment and satisfaction that is in keeping with the amount spent.

• The expenditure resulted in you learning something valuable.

• Other people in your life also benefited from the expenditure.

• Your life was enriched in some other way.

Other ways of thinking about the question are to ask: “would I spend the money in the same
way again?” or “was what I got worth the money I spent on it?”

As mentioned above, at this stage, just answer Yes or No; deciding what changes to make, if
any, comes later.

Here are some examples to consider:

• I spent $85 on a shirt I haven’t worn yet and that I’m not even sure I like now I’ve got
it home. Did I get full value for the expenditure?

• I spent $150 on petrol for my car over the month. When I think about it only one
journey in this time was long distance. All the others were driving around town.
Meanwhile I have a push bike in the garage that hasn’t been ridden since I bought it.
Did I get full value for the expenditure on the petrol?

• I spent $72.50 on take out coffees over the month. Did I get full value for the
expenditure?

42
 How to Save Money

There are no black and white answers to these questions. The answer depends on how
someone wants to live. It’s also worth noticing that the answers may change from month-to-
month, so even if I answer “yes” one month, later on I may change my mind.

Question 2: “Does the expenditure meet my Values?”

In this question “Values” means what is important to you in life; Values are our underlying
beliefs about what is right or wrong. Some examples are things like: sustainability, behaving
ethically, equality, wealth, family, spirituality, religion, having fun, creativity, safety or lifelong
learning.

Our Values influence the way we behave; if we believe something is important we try and live
our life in way that meets that belief. It’s not usual to explicitly think or talk about our Values in
everyday life, and sometimes our Values can be outside conscious awareness. More often
we’re aware of a person’s behaviour rather than the underlying Value that lead to that
behaviour. Values are like the roots of a tree: they are essential for the wellbeing of the tree,
but are hidden below the surface. Here are some examples:

Value that person has Things you might notice about them
Sustainability Recycle all their waste
Cycle to work
Grow their own veges
Donate to Greenpeace
Being wealthy Read the business section the paper
Work hard
Regularly check their bank balance
Knowledgeable about investing
Having fun Spends time reading about their interests
Invites friends round
Laughs a lot
Often have ideas for things to do

In general people know what is important to them in life; and, as explained above, sometimes
our Value are outside of our conscious awareness. In this case, a short cut to identifying your
Values is to ask yourself “Does this expenditure feel right to me?” In asking this you are
calling on your intuition to help you decide if the expenditure fits with the way you want your
3
life to be. People sometimes talk about this as their “gut feeling”.

Here are some examples to play with; imagine the expenditure applies to you and check how
well it is aligned with your Values. For each example, ask yourself “Would this expenditure
meet my values? Would it feel right to me?”

• A person spent $340 on alcohol in a month. They drank most of it themself.

• Someone donated $100 to a community group to help put on a social morning for
local people.

• A person took three short-haul flights in the month to catch up with friends. The total
cost was $1350.

For the purposes of the Monthly Review, all you want is a simple “Yes” or “No” answer;
however, you might begin to notice that asking this question can also lead you to deeper
thinking about your life and what is important about it.

43
 How to Save Money

How to Review your Expenditure

You will need you Monthly Review Worksheet from the previous step.

1. Starting with the first Detailed Spending Area, ask yourself “Did I get full value for the
expenditure?” If the answer is “Yes” put a tick in the column headed “Value?” If the
answer is “No” put a cross in the column headed “Value?”

2. For the same Detailed Spending Area” ask yourself “Does the expenditure meet my
Values?” If the answer is “Yes” put a tick in the column headed “Values?” If the
answer is “No” put a cross in the column headed “Values?”

3. Repeat steps 1 and 2 for the next Detailed Spending Area and so on until all Detailed
Spending Areas have been done.

What if questions for Reviewing your Expenditure

I found it hard to decide on an answer for some areas and I couldn’t make my mind up,
so I just put a question mark...is that OK?
It is OK, you can treat question marks as being between “Yes” and “No” if you like. In the next
Chapter you are going to prioritise the areas you want to change, so that should help you sort
things out.

Another thing to do if you can’t decide is to take a guess; try asking yourself “if I were to know,
what would it be?” and then going with whatever comes to mind. Trust your intuition.

Rather than asking each question for a Detailed Spending Area, could I first ask the
“Did I get full value?” question for all expenditures and then come back to the start and
ask the “Did it meet my Values?” question?
Yes, either way works fine. You can try different ways and find out what works best for you.
The main thing is to ask both questions for all expenditures. The order they get done in
seems relatively unimportant.

I’ve answered the two questions but didn’t really come up with many “No” answers.
However, I still feel I’m spending too much money each month, what do you suggest?
To help you find places for savings you can try analysing certain expenditures more deeply.
One way of doing this is to compare the cost of the way you do things now against the costs
of possible alternatives. This can highlight areas where your expenditure is high compared to
more thrifty alternatives. For example, many people go out to buy a coffee and then take it
back to work or home. Let’s compare the real cost of buying coffee from a coffee shop with
making your own coffee.

In Australia a standard coffee bought from a café costs around $3.00. A typical cup of coffee
is made with about 7 grams of coffee. That means that the coffee from a café costs about
4
$430 per kg ($3 divided by 7g and multiplied by 1000g).

Compare this with making coffee at home. A packet of coffee from the supermarket costs
5
around $8.00 for a 200g bag. That works out at $40 per Kg.

So, when you buy coffee from a café you are paying around ten times as much as if you
made it yourself. Obviously people must have reasons other than just value for buying coffee
6
from a café. The question is: are those reasons strong enough for you to be sure you are
getting full value for your money?

As I’m working through the questions I get lots of ideas about how I can change things
and start thinking about them, is that OK?
The key at this stage is to go through all of your expenditure and answer the two questions. If
you get ideas for changes along the way then by all means jot them down, but for the time
being just focus on answering the two questions. This is important because although it’s

44
 How to Save Money

exciting to think about making changes, you want to be sure that you are focusing on the
most productive areas.

Why not ask the two questions for income too?

That’s certainly an option. The focus of this book is on how to reduce expenditure. And, it can
also be useful to think about how you earn money: are you making good use of your energy
and how well aligned are the things you do with what’s important to you?

I asked the questions and found an area where I think I could spend more is that OK?
Sometimes you will find areas where more expenditure would improve the quality of your life
or lead to you living more aligned with your Values. That’s great. Spend more and then review
those expenditures in coming months. If it genuinely makes you happier: spend more.

Key  points  
• Change often starts from a sense of dissatisfaction with something.

• Reviewing your expenditure reveals areas of dissatisfaction with how you spend
money.

• You review your expenditure by asking questions about your Detailed Spending
Areas.

• The questions are:

o Did I get full value for this expenditure?
o Does the expenditure meet my Values?

• “Value” means value for money.

• “Values” means what’s important to you.

• Answer “Yes” or “No” to each question for every Detailed Sending Area.

• If you can’t decide take a guess, put a question mark or put “No”.

1
John Locke, An Essay Concerning Human Understanding, (1690)
2
http://en.wikipedia.org/wiki/Formula_for_Change
3
There are exercises that can help people work out their Values. There is one here.
4
This assumes that most of the cost of a cup of coffee is the coffee itself. For you making coffee at home this is true;
for a café obviously it is not: they have many other expenses. When you buy coffee from a café you are paying to
keep them in business.
5
That’s fancy coffee. It’s often possible to get 1kg of beans for as little $10 or $12 when there are offers on.
6
One reason I’ve heard at workshops is about the quality of café coffee compared to homemade. It’s true, cafes do
make good coffee. From my own experience I would say you can get as good, or better, results at home by using
what is often called an “Italian coffee machine” (they look a bit like a Dalek) and heating the milk up.

45
 How to Save Money

Chapter  9:  Making  Changes   Monthly

Review 3
Chapter  Summary   Make changes
In this chapter: (Chapter 9)

• Making changes to how you spend money is the whole

point of the book.

• Several ways of thinking about change.

• How to choose which changes to make.

• How to make a change.

In the previous two chapters you:

• compiled a record of all your income and expenditure and;

• for each item of expenditure asked yourself

o if you got good value for your money and,

o if it is aligned with how you want to live.

Having done this you might have identified some areas of expenditure where you’d like to
make changes. This section describes how to do that.

Why Making Changes is important

Back at the start of the exercises (Chapter 4: Getting Motivated) you identified some things
you want to achieve. This may include, or be dependent on, you spending less money. To
spend less money you are going to want to make some changes to your spending habits.
This chapter describes a method for making those changes happen. By making changes in
your spending patterns you can expect to:

• Save money and consume less.

• Live in a way that is more aligned with what’s important to you.

• Be happier (well...maybe, “happiness” is so subjective!).

All the previous steps lead to this point: making changes to your spending is the whole point
of this book.

What you need to know about Making Changes

The Change Equation

Remember the Change Equation from Chapter 8.

For change to occur:

D x V x F must exceed R

D = Dissatisfaction with how things are

V = Vision of the future - how things will be after the change
F = First practical steps towards change
R = Resistance to change
 How to Save Money

In the previous chapter (Chapter 8: Reviewing your Expenditure) you will have identified some
areas of spending that are ripe for change: the Detailed Spending Areas where you answered
“No” to one or both of the two questions (“Did I get full value?” and “Does this meet my
Values?”) are likely to be areas of high Dissatisfaction with how things are; areas where
change is likely to be easiest. This section describes ways to take an area of dissatisfaction
and to complete the Change Equation by developing a Vision of the future and then
identifying the First practical steps.

Here’s an example of how the Change Equation works in practise:

Imagine that I’ve just finished a Monthly Review and I’ve realised my car is an
expensive way of making short journeys. Alongside that I’ve become so unfit
that I get breathless climbing a flight of stairs (Dissatisfactions with how things
are). My idea is to buy a pushbike to cycle journeys less than 10 km (Vision of
the future). This will take a bit of time and effort to research and buy a bike, plus
it’s going to cost me some money and I have to make the effort to get on the
thing and use it (Resistance to change). To get things started I decide to visit a
bike shop to do some research about bikes; look on the internet and in the
paper for second-hand bikes and talk to a friend who’s been cycling for years
(First practical steps).

How many changes to make each month

One question to consider is how many changes to
try and make at once. This varies from person-to- Definitions  
person, but in general it’s better to take on only a Benefits – the good things that will come of
few changes at a time. The How to Save Money making a change; could be financial or lifestyle
process is designed to work over a long period of related.
time; there is going to be plenty of time to make Change Equation – a management tool for
all the changes you want. Two factors will thinking about change. States that for change to
influence the changes you decide to take on: the occur D x V x F > R.
complexity of a change and it’s priority. D = Dissatisfaction with how things are –
what you’re unhappy about
Simple and Complex Changes V = Vision of the future – how you’d like
things to be instead
The complexity of a change is one of the factors
in deciding which to take on. Broadly speaking, F = First practical steps – what you’re going
to do to reach your Vision
changes fall into two groups: simple and complex.
R = Resistance to change – the things
stopping you from changing.
Simple  changes  
Change Sheet – a printed form used to record
Simple changes are those that you can achieve changes you want to make using the Change
with relatively little effort or planning; and that Equation as a template.
mostly affect only you. In these cases your vision Complex changes – Changes that involve
of the future and the first practical steps are major upheaval in your life; require a lot of
usually pretty obvious and easy to create. Some planning; involve other people and/or involve
examples might include things like: significant risks to your livelihood.
Detailed Spending Area – the second, and
• You currently buy lunch at work every day lowest, level of detail for grouping and sorting
of the week; you decide that from now on your expenditure and income.
you will take your lunch to work three Monthly Review Sheet – a table of General and
days out of five. While it may require a Detailed Spending Areas (and Income Areas if
you are using them) created in chapter 6. Has
little planning to make lunch it doesn’t feel
columns labelled “Income”, “Expenditure”, “Got
too complicated to manage. The first thing value?”, “Meets values?” and “Changes”.
you do is to write out a menu for each day
Priority rating – an assessment of the ease and
of next week and a shopping list for the potential benefit of a possible change; a rating of
ingredients you’ll need. High (H), Medium (M) and Low (L) is used.
Simple changes – changes that are relatively
• Your were surprised by how much you quick and easy to make; that only impact you
spent on books in the month; you decide and/or involve little or no risk to your livelihood.
to join the library and get your books from

47
 How to Save Money

there. The first thing you do is visit the library web site to find out how to join and then
go and do it.

• You spent a lot on petrol in the month and have decided to cycle to work at least four
days a week (weather allowing), as you already own a bike and hard hat, and work is
only 5 km away this should be easy to do. The first thing you do is go and check over
the bike, pump up the tyres and put some oil on the chain.

Complex  changes  
Complex changes are those that require some thinking through and planning, particularly if
they might affect your income, have an impact on other people, may require a lot of effort or
involve major changes to your way of life. Some examples might include:

• You are a smoker and have had enough of ruining you health and wasting money on
cigarettes; you decide to quit once and for all. Of course, everyone knows smoking is
bad for your health and is expensive, but if it were as easy as just deciding to stop
you’d have done that a long time ago. Changing an addictive habit, like smoking,
1
requires a little more effort and planning.

• You have realised that your job is costing you a lot of money in clothing, travel and
food; and isn’t really very satisfying. You’ve been thinking of changing jobs and
working closer to home for a while now, so you decide it’s time to take action and
make the shift. However, your family is at least partly dependent on your income, so
the change will need some careful planning.

• Your mortgage is your biggest outgoing and your house is twice the size you need to
live comfortably. You would like to “downsize” to a smaller home and a more sensible
mortgage. Even if you live alone and are free to make this change, such a shift needs
some planning. If you have a family, then, obviously, there is more to making this
change than just moving house!

The Change Equation seems to apply well to both simple and complex changes and the
process described below can be applied to both. However, complex changes may require
more time and effort to plan. Some additional tools for making complex changes are available
on-line.

I recommended that you take on Complex changes one at a time. There is a risk in trying to
make too many changes at once: you may get overloaded and this can deter you from
continuing with the system. It is VERY IMPORTANT for the changes you take on to feel
manageable. If you’re feeling overwhelmed, you are trying to do too much. Remember, this
system is NOT a quick fix; it works over years. You’ve got plenty of time.

Prioritising possible changes

In the exercise below you will prioritise possible changes by asking yourself:

“What benefit is there in making this change and how easy is it?”

Based on this question, you assign each possible change a priority rating of High (H), Medium
(M) or Low (L).

The benefits of a change could be:

• Financial benefits – the more money you will save, the higher the priority rating, or,

• Lifestyle benefits – the more a change helps you live the way you want, the higher the
priority rating.

Obviously, the highest priority ratings got to changes that are both easy and that have lots of
benefit to you.

48
 How to Save Money

The “Change Sheet”

Once you have decided to make a change you are asked to record the details on a “Change
Sheet”. It is useful to keep this somewhere visible, such as on the fridge. When you do your
next monthly review, you will come back to the changes you wanted to make to see how
you’re progressing. Each month you have an opportunity to review what’s changed and,
perhaps, reaffirm your desire to change a particular area of expenditure. Finally, there is a
great sense of satisfaction to be had from crossing a completed change off the list.

How to Make Changes

Here are step-by-step instructions for identifying and making changes. You will need your
Monthly Review sheet from the previous step. On this you will now have the expenditure in
each Detailed Spending Area for this month, and a “Yes” or “No” answer to the questions:
“Did I get full value?” and “Does this meet my Values?” For this stage you are only interested
in Detailed Spending Areas with one or more “No” answers.

1. For every Detailed Spending Area with one or more “No” answers ask yourself: “What
benefit is there in making this change and how easy is it?” Assign a priority rating of
High (H), Medium (M) or Low (L). Write the priority rating in the “Change” column of
the Monthly Review Worksheet.

2. Starting with highest priority Detailed Spending Areas, pick the ones you will actually
make changes to this coming month. Pick a number that feels manageable, probably
somewhere around three is good. Pick a mixture of smaller, easy to make changes
and, at most, one complex one. Make a note of which changes you are going to make
in the “Change” column of the Monthly Review Worksheet.

3. For each Detailed Spending Area where you have decided to make a change this
month, fill out the Change Sheet: write down the name of the Detailed Spending
Area, why you are unhappy with the expenditure (your Dissatisfaction with how things
are), how you want it to be (your Vision of the future) and the first two or three things
you are going to do to change it (your First Practical steps).

4. Keep the Change Sheet in a visible place and refer to it over the coming months.

What if questions about Making Changes

I’ve been trying to change the same thing for months but I’m not making progress,
what should I do?
Yes? Well welcome to the human race. It happens. If you haven’t achieved much, that’s fine.
Simply check the change is still important to you, review your Vision of the future and the First
practical steps and see how you go with it over the next month...and the next month...and the
next month...and the...do you get it? Change can happen quickly and it can happen over time.
It’s not a race or a competition; this process is NOT about quick fixes, the process works over
time – often months, sometimes years.

When it comes to prioritising possible changes, can I rank benefit and ease
separately?
Yes. For example, you could record them like this: H/H which would be High benefit and High
ease (i.e. it’s easy to do); or M/H Medium benefit and easy to do. If you do this, tackle the H/H
ones first. After that, I’d go for M/H (Medium benefit, High ease) before H/M (High benefit but
not so easy), but that’s just me.

I’ve got something I want to change, but I’m having problems coming up with a Vision
of the future...what should I do?
Sometimes when we’re stuck in a rut it isn’t always easy to imagine how we’d like things to be
instead; the present seems to obscure the future. There are many ways to create a vision of
the future. Try working through this exercise. At each step jot down any and all ideas that
come to mind; don’t judge the ideas in any way, just write down everything, you can sort them
for practicality later (sometimes called “Brainstorming”).

49
 How to Save Money

1. Think about what you’re dissatisfied with. Then ask yourself “If I didn’t have that
anymore, what would I have instead?” Keep asking the question until you arrive at
something positive.

2. Try and think of someone else who is living the way you want to. What is about their
lifestyle you admire? How would they describe their lifestyle to you?

3. Ask yourself this question “If I could wave a magic wand and have everything just the
way I want it, what would that be like?”

Once you have some ideas, go through them and find the one(s) that seem achievable. Use
those to create a Vision of the future. If you’re still stuck, feel free to get in touch with the
author ([email protected]).

I don’t know which First practical step to take

Think of anything, it doesn’t matter how small it is; then do it. If you still feel stuck and don’t
want to get started: think of something even smaller and do that. Starting seems to be the
most important thing.

Is it better to make big changes before small ones?

Personally I like my life to be simple, so I prefer multiple small gains over one big one. That’s
just me. Some of the advantages of making many small changes are:

• It’s easier to find small changes to make.

• Each one is relatively easy to do.

• If you lose interest in one, there are always other things to turn to.

• Small changes spread risk: if you muck up a small change or change your mind half
way through, then not much is lost.

• The long-term accumulation of many small gains is the way that the majority of very
wealthy people become very wealthy (see the bit about the Millionaire’s Next Door in
chapter 3).

Some of the disadvantages include:

• The effects are less obvious.

• If you enjoy drama in your life, then you’ll have to find other ways to get that.

It’s all very well knowing I want to change a habit like smoking, but I’ve tried before and
I don’t think it’s as easy as just seeing how much it’s costing me: I’m an addict!
That may be true. This book is about money; there are other excellent sources of help and
information about changing things like addictions. Use this How to Save Money system to
point out those places you may need to seek further help.

And, for smoking: Alan Carr’s “Easy Way to Stop Smoking” worked for me. Important point:
you have to read the book thoroughly and do what it says, seems obvious but it’s surprising
how many people own it, but fluff it.

I want to make a big change in my lifestyle, but this process seems a bit “light”, what
should I do?
Good question. Making big changes can include a lot of different factors. I foyu’d like more
ideas or some help please feel free to contact me ([email protected]), I’m happy to
share what I know.

50
 How to Save Money

Key  points  
• Making changes to how you spend money is the whole point of the book.

• The Change Equation is a simple model for thinking about change (The Equation:
Change is most likely to occur when you are dissatisfied with how things are, have a
clear vision of how you want things to be and have identified the first practical steps
to take.)

• Possible areas for change are those Detailed Spending Areas where you didn’t get
value for money, that didn’t meet your Values, or both.

• Priority ratings (High, Medium or Low) are assigned to each possible area of change.
Priority ratings are based how easy a change is likely to be and how much benefit it
could bring.

• Do High (H) priority changes first.

• Broadly speaking, changes can be split into ones that are simple and those that are
complex; only ever take on one complex change and a small number of simple ones
at any one time.

• Record changes you want to make on the Change Sheet.

• Keep the Change Sheet in a visible place and use it to review your progress.

1
There is a lot of very good information on quitting smoking. From my own experience: Alan Carr’s “Easy way to stop
smoking” works. You can get this book from any library. So long as you read the book carefully and do what he says,
the method seems to work.

51
 How to Save Money

Chapter  10:  Final  Words  

This is the end of the How to Save Money process. If you follow the steps explained in the
previous sections you will:

• Save more money and consume less.

• Live in a way that is more aligned with what is important to you.

• Probably find you are happier.

In summary, the practical steps of How to Save Money are:

1. Record everything you spend and earn (Chapter 5).

2. Once a month assign each expenditure to a Detailed Spending Area (Chapter 6 to set
up General and Detailed Spending Areas, Chapter 7 to assign expenditure).

3. For each Detailed spending Area ask yourself if you got full value for expenditure and
if it is aligned with your Values (Chapter 8).

4. For Detailed Spending Areas where you answered no to either question: make
changes to the way you spend money in that area (Chapter 9).

To close, I’d like to draw your attention to a few important things:

• This process only works if you do the exercises; in particular it works best when you
do it over the long term.

• This process takes time and effort, especially if you spend a lot of money or generate
income from several different sources. Sometimes it can seem a bigger job than it
actually is. It’s a bit like being in the situation of wanting to say something difficult to
someone and not having the nerve to broach the subject. In my own experience, the
longer I put these things off the worse they get. When I do eventually pluck up the
courage to do something, it’s invariably easier than I expected and it’s a real relief to
get it done. When it comes to the Monthly Review, you may want to remind yourself
of how much you stand to save by doing this process (see the end of Chapter 1) and
therefore how much you are effectively paying yourself per hour by doing the Monthly
Review.

• Please keep in mind that your first Monthly Review will probably take the most time
and be the most challenging of any you’ll ever do. It’s the same whenever you
undertake something worthwhile: it takes time to learn the process. The good thing is
that practise makes perfect. The more Monthly Reviews you do, the easier they will
th
become. At the time of writing (January 2013), we have just completed our 70
Monthly Review (nearly six years!). They have become extremely easy and routine.
And in those six years we have made some amazing lifestyle changes.

• By doing the Monthly Review you will become aware of how money flows in your life,
including some ways that you’re not happy about; it is designed to reveal unhelpful
spending habits. Sometimes this is a less than comfortable experience. It is helpful to
approach the Monthly Review with an attitude of acceptance. It’s a bit like receiving
some honest, well-intentioned and fair feedback. It’s not always a comfortable
experience and our tendency can be to react with strong emotions, like resentment or
anger. However, once these feelings pass, it’s usually possible to consider and
evaluate the feedback. Then we can choose whether to make changes to our
behaviour. The Monthly Review is the same: by systematically reviewing the flow of
money in your life you are giving yourself feedback about how you spend and earn.
 How to Save Money

By accepting and considering this feedback, you are in a position to either take life as
it comes or change the way you use money.

Finally, if you’ve come this far:

Thank you and GOOD LUCK!

If you have any questions (or comments) please get in touch. If you’re committed to the
process I’m happy to help you.

Chris Lampard
[email protected], @ChrisLampard, sustainablemoney.wordpress.com

53
 How to Save Money

Appendix  1:  Sample  Monthly  Review  Worksheet  

General Detailed Income Expenditure Value? Values? Change?
Spending Area Spending Area
 How to Save Money

Appendix  2:  Sample  Change  Sheet  

General Detailed Dissatisfaction with Vision of the future... First practical steps...
Spending Spending how things are...
Area Area
 How to Save Money

Appendix  3:  Bibliography  

Money and lifestyle
Your Money or Your Life, Vicki Robin and Joe Dominguez. A practical and easy to follow
book about money and simplifying your life. Doing what it says changed my life. Source of
many of the techniques in this book.

The Millionaire Next Door, Thomas J. Stanley and William D. Danko – wide ranging
research on how millionaires become millionaires and how they live. In summary: they’re
frugal and save money over the long term.

Affluenza: when too much is never enough, Clive Hamilton and Richard Denniss – the
book about consumerism in all its guises.

Prosperity without Growth, Tim Jackson – he’s an economist. The book lays out an
economic model for life after growth. First half of the book explains why this is important:
we’re approaching limits to growth. Gives capitalism a good solid kick in the teeth.

Happiness – Lessons from a new science, Richard Layard – a good overview of the
studies on happiness and its non-connection to wealth and materialism.

In search of Happiness, John F Schumaker – thoughtful investigation of happiness in ways

beyond materialism.

The High Price of Materialism, Tim Kasser – research on the effect of holding material
values on psychological health and well-being: it’s not good for them. Describes alternative
ways of thinking that are more conducive to happiness.

Status Anxiety, Alain de Botton – one of the causes of consumerism is that we constantly
seek to increase our status. Deep and thoughtful book, great examples exploring the link
between needs, desires and consumption.

Climate Wars, Gwyn Dyer – a geopolitical analyst’s take on climate change and the future.
Often grim reading, but he does try to look for possible futures as well and ends surprisingly
optimistic.

Requiem for a species, Clive Hamilton – if you’re ever feeling too cheerful and need a nice
dose of reality about the next thirty years or so: read this book. Hard-hitting, uncompromising
and a call to action. Doesn’t waste time on optimism.

Thinking, Fast and Slow, Daniel Kahneman – major overview of unconscious patterns of
behaviour and how easy they are to influence.

Investing
If you’re interested in investing then my advice is: avoid financial advisors of all kinds until you
have educated yourself (see below). Then, if you are sure you need professional advice:
approach with extreme caution and cynicism and...you’ll probably still get burned (after all,
they’re professionals at it).

These books are, on the whole, not trying to sell a service and seem to offer solid, impartial
advice.

Investing for Dummies, Eric Tyson. Good solid investment advice without any agenda.
Strongly recommended. His premise is that you can learn enough to make most investment
decisions yourself, and if you do need advice, it’s much better to be well educated before
seeking it. That way you can ask the right questions and assess the answers you get. This
book is written for a US audience, so some of the advice, for example on tax, applies

56
 How to Save Money

differently elsewhere. However, the principles are sounds, the layout clear and the advice is
good.

A Random Walk Down Wall Street, Burton G. Malkiel – a thorough, researched and
referenced demolition of financial advisors, brokers and all the other charlatans who claim
they can predict the market and make you a fortune fast. In summary: it can’t be done and
anyone who looks like they can do it is just getting lucky (or massaging their data). If only they
taught this at school!

The Wall Street Defense Manual, Henry Blodget. Humourous and vigorous look at the
investing world from someone who used to be part of it. His advice is sensible and likely to
work. Covers pretty much the same ground as the Random Walk book above. Again, written
for a US audience, and the principles apply here.

After the panic: surviving bad investments and bad advice, Gareth Morgan with John
McCrystal. Gareth Morgan has a no-nonsense style and very clear view of how the
“investment industry” works and makes money. In summary: by charging investors for advice
they probably don’t need and that may not actually help them much. Written for NZ audience.
Beware: he’s a financial advisor and has written the book to sell himself and his advice. It’s
still a good book just don’t buy anything from him.

Twenty good summers : work less, live more and make the most of your money, Martin
Hawes. Practical, down to earth and clear. His other books are excellent too. Written for a NZ
audience. Beware: he’s a financial advisor and has written the book to sell himself and his
advice. It’s still a good book just don’t buy anything from him.

57