Save money and pay yourself first on your phone bill

Discussion in 'Frugal Tips For The Home' started by admin, Nov 8, 2015.

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  1. admin

    admin Administrator Staff Member

    Admin Post
    I’ve always looked for ways to increase personal income and thought it was a way to build wealth, what I actually found was every time my income increases whether it was through the job or through the online endeavors I never really knew what to do next, I just thought that I saved money and that was that.

    I recently stumbled across a great site The Simple Dollar which promotes frugal living, paying off debt and building wealth, the author of the site advocates that every time you save money pay yourself first before you do anything else. I really wanted to put this into practice and found the first opportune moment with the phone bill.

    Examine Where You Can Save Money

    In the UK we need to pay a line rental usually from BT (British Telecom) which is currently £15.45 per month, if you want to include free weekend and evening calls to other landlines then you have to pay an extra £2, I was paying £17.45 per month under this plan and a total of £209 per year.

    Find Out About All the Offers Available

    Since reading the Simple Dollar I’m always looking for ways to save money, I was quite determined to make some savings on this particular bill. I called the phone company up and asked them if there were any deals and to my delight the phone company was offering a year’s line rental for £129, this means that I would be paying £10.75 per month for the line rental and an extra £2 for the evening and weekend calls. In a year I would be saving £56 which is quite significant.

    How to Save to Money Effectively

    Once I was happy with the deal I transferred £129 from the main savings account to the phone company, I then created a standing order transfer from my main current account to the savings account for £15.45 every month, after a year of payments I would have an additional £185.40 in my account after the debit of £129.00 which would mean a real savings of £56.

    The significant thing here is that I have really saved money, previously I would have just made the payment for the cheaper option and then forgot about it, this time I know exactly how much I have saved and this will go into my main savings account eventually without putting a burden on my current or checking account.

    In terms of investing this is essentially giving a loan out to yourself for £129 a year and then making monthly payments at £15.45 to cover the cost, if you think about it this way then what you’re doing is charging yourself 43% APR on the loan, this is a very good rate of return in terms of a investing your money.

    How Can I Apply This More Often?

    I’m now constantly looking to save money on all my expenses by paying yearly instead of monthly from my main savings account and then setting up a standing order transfer from my current checking account to my main savings account.

    I am now looking to do this with as many of the expenses as possible, even if I can’t find a great deal I will try to pay in advance and then pay myself a little extra from my checking account to my savings account to reward myself for making the early payment.

    My mortgage payments are currently £530 per month, If I pay a year in advance I would have to pay my lender £6360, I am currently have £10,000 in my savings account which is earning 1% interest. I could choose to pay my lender £6360 and then forget about the payments for a year. I could then set up a payment from my current account to my savings account for £550 per month.

    If I took this step then I would be losing £63.60 in interest payments however I would be paying myself an extra £20 per month which would mean that I would be making an extra £176.40 after taking off the interest that I could have earned.

    Some might argue that it’s easier to just save the money and forget about rather than setting up all these little payments going to the savings account, the main advantage that this system offers me is automating my savings, even if I lose my motivation to save money I still have these little payments accruing which becomes quite significant when you keep on doing it.

    If I can put a system like this in place and then still look at ways to bank even more money in my savings account then I am saving from two angles, one would be the extra automated payments while the other would be to consciously look for ways to slash my variable costs like grocery bills.

    How effective is this System?

    If I can make a yearly payment to all my creditors and bills for about £15,000 and then set up a payment system from my checking current account to my savings account for £1350 per month then at the end of the year I would have saved £16.200 automatically without really noticing or feeling the pinch, this would represent a return of 8% which is more than what a bank could currently offer.

    If you’re looking for an automated way to save then this could be a great way to make money without even knowing it, if you generate a return of 8% every year and compound this then you would create wealth very quickly, this system works well for fixed costs. If you can then make a conscious effort to reduce your variable costs like energy, groceries, clothes and entertainment then you’ll make progress much quicker.

    What do you think of this system? Does it work for you? Are there any drawbacks? I would love to hear from you, I would be grateful for any feedback.
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