How to save money without lowering your quality of life

When we talk about saving, the first thing most of us think of is going out less, always buying the cheapest option and giving up anything we enjoy. 

Put that way, it sounds like too much. 

Working all week only to feel guilty about going out for dinner does not sound like the best plan.

That is why I understand saving in a different way: 

Using your money better so that you always have something left at the end of the month without giving up what you genuinely enjoy.  

Sometimes that means spending less. Other times, earning more or stopping paying for things you signed up for years ago. Or paying attention to taxes.

With this article, where I explain the options and what I do myself, we wrap up the series on how to start investing from scratch. Because before choosing where to invest, you need to make sure there is money left over, and keeping it that way requires a sustainable system that gives you more than it demands in effort..

You have three options for saving

The calculation is simple: subtract your expenses and applicable taxes from your income. What remains is your margin, your saving capacity. Learn it, because it is probably the most important figure in all of this.

That said, to increase your saving capacity you can act on each part:

1. Your income.
2. Your expenses (fixed and variable).
3. Your taxes. 

For the first, you can develop a skill, negotiate better terms or create a new source of income. In how to make extra money I explain that last part, so here we will focus mainly on keeping more of what comes in.

For the second, which is what we are discussing here, you can, for example, cancel a subscription you do not use or review an insurance policy.  

Legally improving your tax situation can increase the money you keep and, although it depends on your circumstances, there is often room to do so.

Before cutting back, find out where your money goes

I already explained in this article on how to start investing that the first step is to analyse your expenses, so I will not repeat myself; I will simply leave you a summary.

You have two options: analyse the statements from all your bank accounts for a year or start recording all your expenses in an app or Excel. A budget starts badly when it is built on what we think we spend, which is always less than reality.

A month lets you identify habits, but not every expense. That is why I always recommend the first option to spot insurance, taxes, maintenance and other irregular payments. An annual insurance premium of six hundred euros represents fifty euros a month that you need to set aside, even if the bank charges it all at once.

Then separate fixed expenses from variable ones. The former repeat because of a prior commitment, while the latter change with consumption.  

Also separate essential expenses from non-essential ones, which is not the same as the previous distinction: a subscription is usually fixed but expendable, while food or petrol are variable and essential. Look at how much each of these groups adds up to and, above all, pay attention to one thing in the non-essential group: what you get in return in each case.

Only when this is clear will you be in a position to decide where to cut back..

How to organise a budget and choose a saving method

With the figures in front of you, a budget helps divide your income between needs (including future payments), enjoyment and savings. It does not have to be perfect, just realistic and flexible: if you are always short on the amount allocated to food, you probably need to adjust that category; you cannot fight inflation every month.

There are different methods that are actually similar at their core. So you can combine them to create one that feels comfortable for you:

Method	How it works	What to keep in mind
50/30/20 rule	It suggests allocating around 50% to needs, 30% to wants and 20% to savings	The proportions may not fit your salary or housing costs
Zero-based budgeting	You assign a purpose to all your income, including savings. In other words, there is no unassigned surplus	It does not mean leaving the account empty (you can leave an amount there): it means planning where the money will go
Envelopes or categories	You separate amounts for shopping, leisure, bills or goals	You can do it with accounts, pots or a spreadsheet

Depending on where you live, rent may consume a large share of your salary and the 50/30/20 rule may not apply. Use these divisions as a reference and adapt the budget to your reality.

It is also useful to distinguish between saving and setting money aside to spend later. What you set aside for car insurance will prevent a nasty surprise when the bill arrives, but it will not be available to invest.  

That separation helps you avoid mistaking a high balance for money you can spend freely. That is why planning for it in advance in another account works so well.

Automatic saving: set money aside before you spend it

Let us be clear: waiting until the end of the month to save whatever is left is a terrible saving system. So once you have analysed your expenses and know how much you need to live and cover planned payments, it is better to set an amount aside as soon as you get paid.,

You can organise it with one account for day-to-day spending, another for emergencies and another for goals or irregular expenses, for example. In my case I have separate accounts, an emergency fund and automated transfers for investments. The system does not depend on me remembering. 

Start with an amount you can maintain. If you have analysed things properly, you will not have to take it back later to pay for groceries. If your calculations were wrong, you will need to adjust them. 

If you are self-employed and have variable income, you can combine a small fixed monthly amount with additional contributions when you earn more, while avoiding an automatic transfer that leaves you overdrawn.

To estimate the emergency fund you need, simply multiply your necessary monthly expenses by the appropriate number of months, fewer if you live alone and more if you have children. In any case, the range will be between 6 and 24 months, with 12 being a suitable starting point in almost every case.  

That emergency fund will let you sleep peacefully, because you will be able to keep covering the essentials even if, overnight, you suddenly had no income at all.

How to save money on a low salary

With a low salary, the first thing is to check whether you can cover housing, food, utilities and necessary transport. If almost everything goes there, cancelling a streaming service will not solve the problem. You will need to consider how to increase your income, reviewing major expenses where feasible or accessing any assistance you are entitled to.

It also makes no sense to impose a saving percentage that you cannot meet. A small amount can help you build some margin if you can set it aside, but remember that the emergency fund comes first and that known future expenses (property tax, insurance, etc.) are not paid from this fund.

What you can do is review your debts. If, apart from the mortgage, you have expensive debt, review the interest and instalments and pay it off before thinking about saving. What matters is improving your overall net worth (capital, assets and debts) without jeopardising upcoming payments.

How to save money at home and on groceries

Now we get to what is genuinely harder. Our habits will not make this easy.

Review recurring expenses and fees

Start with housing, utilities, telecoms, subscriptions and insurance, because a lasting improvement has an effect every month. Cutting twenty euros a month from an equivalent service saves two hundred and forty a year without having to think constantly about spending.

Check what you use or enjoy. A subscription of 10 euros adds up to 120 a year. If you enjoy it, it is worth it. If you open it one month a year to watch the new season of Game of Thrones, maybe it is not.  

Perhaps Amazon Prime —because of free shipping— already gives you more than enough material for the amount of TV you watch each day, and you do not need to add Netflix and HBO. Or perhaps you would rather choose AppleTV and its excellent science-fiction series. Any one of these catalogues gives you YEARS of entertainment. Make the most of it.

Another idea is to rotate accounts and subscribe to one platform for a month to binge the series you want, then stop paying when you are not using it. 

Also review annual charges, which will not show up in a three-month search.

At the bank, look at fees and the conditions required to avoid them. If your salary is paid into the account, you should not be paying any.

At home, compare electricity and internet tariffs. Think about whether you can reduce contracted power or choose a better fibre-and-mobile deal.  

With insurance, review cover, insured amounts, exclusions, excesses and possible overlaps. One month before renewal, compare prices. Renewing with your current insurer while holding a competitor's offer can easily save you 10%.

For food, plan what you are going to consume

A list based on what you already have at home before going to the supermarket helps prevent overbuying or throwing food away because it expires. It also helps to compare the price per kilo or litre: although it often is, the larger pack is not always cheaper if you end up wasting part of it.

Planning what you will eat for lunch and dinner each week also helps, excluding the days you will eat out. And if you go one step further and calculate what each meal costs you , you may be surprised.

You may initially think spending €200 a month on food per person is a lot, but divided by 30 days it comes to €7 a day. That means €3 for lunch, another €3 for dinner and €1 for breakfast. Now think about what you can buy with that and you may decide to increase your food budget by another 50%.

To reduce the cost of your shopping basket, you can always use special offers, products close to their expiry date and apps such as Too Good To Go, which work quite well.

Exercise, that great forgotten item

Until recently —though lately I can see things changing, which I am glad about— one of the first casualties when people try to save money has been the gym membership.

Yes, the reasoning is: if I can go running, why pay for a gym?. 

Wrong. Or at least half wrong. Strength training is essential for many reasons that are beside the point here. Running, skating or playing football do not replace it.

The cheapest alternative I know is to buy yourself a bench like this one and a couple of dumbbell sets with enough weight plates. For around €200 you can train every muscle group, and the space it takes up —for example between the bed and the wall— is negligible.

And if you also complement that with running, you can stay in very good shape without paying the €30 a month or more that a fairly ordinary gym costs.

The important thing here is not to neglect your health just to save a little. Remember the title of the article: How to save…   without living worse..

Look at the full cost of buying and financing

Before financing anything, compare the APR, the total amount payable and the terms with the cash price. 

Some financing really is free, but other offers only look small because they show you the monthly instalment and not the extras.

With credit cards, check whether you pay the full balance or defer it. Never use a revolving credit card..

And before making a large purchase I have a trick: two useful questions.:

1. The first is what else I could do with that money. Or how much it could generate if invested.
2. The second is how many hours of work it represents: a pair of shoes costing one hundred and twenty euros equals fifteen hours if you earn eight euros net per hour —the issue of net hourly pay is another can of worms, especially if you include commuting, but we will leave that for another day—. 

And I compare both answers with the pleasure —needs do not count here— that I think the purchase will give me. 

And the balance always tips one way or the other.

Let us go a little deeper here because it is worth it.

Minimalism: keep what genuinely adds value

Perhaps I am influenced by the move I will have to make in a few months, but the more I think about it, the more I like minimalism. 

Now that I have reached a certain age, and after owning countless material things that I thought I needed —or at least wanted— at the time, I have never valued space as much as I do now.

And it is not about having an empty house, but about keeping what I need or enjoy and stopping storing things out of habit or because of what they cost you. Every object requires space, cleaning, maintenance and attention, as well as the money it cost.

That is why, nowadays, I think quite a lot before buying and I gradually get rid of what I do not use. Earning more does not change that way of living; if anything, it reinforces it. When I can buy something that interests me and still choose not to, I better understand not only what it gives me, but what it takes away. Once again, the balance decides.

You can break this mindset down into four habits:

1. The first is asking yourself why: what need the purchase solves or why you keep paying for a service.  
2. The second is considering how much of your time it takes, because saving five —or fifty— euros may not be worth an afternoon of travelling around and handling paperwork. Your time is always the most valuable resource.
3. The third is learning to say no to purchases, commitments and plans that you accept out of inertia.  
4. The fourth is doing one thing at a time: reviewing a purchase calmly when you genuinely have time to focus on it lets you compare what matters, instead of deciding while replying to messages and jumping between offers.

That does not mean questioning every coffee. I prefer to devote that attention to large and recurring expenses and spend comfortably on what adds value for me. 

Health, food, social life, useful training and tools you use a lot are things I do not mind spending much on, because they add value. 

A car or a 180-square-metre home in the city centre, not so much.

Your budget should fit your life as closely as possible.

The invisible portfolio: the money and resources you keep by saying no

Some decisions never appear as gains: debt you did not take on, a purchase you did not make or an investment you rejected because it did not fit you. You cannot assign them an invented return, but you can recognise that they prevented resources from being committed..

I have turned down investments for the sake of comfort and simplicity: even though they might have been interesting, I did not see them fitting into my long-term portfolio. Having more positions does not always improve the whole —in fact, it often makes it worse— and adding something also means understanding and monitoring it.

In addition, I also turned down the chance to invest in an excellent, very solvent company that I had worked with. It was growing across different business lines and needed people to lead them. They had cash, and my contribution would mainly have been work, so it was a great opportunity to earn significant income (six figures) within a couple of years.

But my situation had changed. With my son, different schedules and accumulated tiredness, I preferred to prioritise other things. I chose to reserve resources for my family and my own projects because the commitment it required, although not especially high, did not fit my life.

This second case is not monetary saving, but it is worth remembering something important: to earn more you may have to spend time and energy that you also value. In investment risks and guarantees we talk about protecting money. When making a decision, it is also worth looking at which other resources you are committing..

Paying less tax legally also lets you save

Taxation matters because the money you keep depends both on what you generate and what you have to pay. So it is always worth reviewing the deductions and reductions that apply to your situation. If you are self-employed, that also includes business expenses that meet the requirements to be deductible. Buying something unnecessary just to deduct it is still spending money.

When investing, it is useful to distinguish between reducing taxes and deferring them. For an individual who is tax resident in Spain, certain transfers between funds allow you to switch funds without recognising the gain or loss at that moment, provided the requirements of the Spanish Tax Agency are met. This advantage does not generally apply to ETFs. The tax is deferred, not eliminated.

Pension plans can allow you to reduce your taxable base through contributions within the applicable limits, but withdrawals are taxed as employment income. The final benefit depends on your situation when contributing and when recovering the money, as well as costs and availability conditions. It is not a guaranteed return equal to what you save in tax today.

That is why I would not choose a product solely to pay less on the next tax return. In investment vehicles you have the context to understand what you are buying. If the amount involved makes it worthwhile, professional advice may help more than applying a supposed tax trick without checking it.

And besides this, there are always other legal forms and structures for setting up and organising your activity and income that mean that, in exchange for effort —planning and management— you pay less tax than you would if you never considered making the change.

Conclusions: where to start saving money

So, after everything I have told you, how would I start saving?

First, I would review my expenses from the last year. Then I would adjust my spending —necessary expenses too, but especially discretionary ones. With that information I would prepare a simple savings plan and set aside a sustainable amount as soon as I got paid, using automatic transfers.

Once my emergency fund was covered, that is when I would start investing, as I explain in my investment system. And I would review the budget whenever my income or life changed, without turning every financial improvement into a new fixed expense.

Over time, that saving margin will help you build and protect your wealth. But it can also help you deal with an unexpected event or work less, or even not at all.  

And, for me, saving makes sense when it increases these possibilities and gives me optionality while still letting me spend on what I enjoy, knowing that I can do so because there is a system behind it that supports it.

Next steps

If you want to go a little further, I invite you to continue with the next article in the series:

1. Investing from scratch: where to invest your money.
2. Types of assets you can invest in according to their role in the portfolio.
3. How to buy assets: investment vehicles.
4. Investment platforms: where to buy investment vehicles or assets.
5. Investment risks and guarantees.
6. My investment system.
7. Wealth: how to grow it, protect it and pass it on.

And the extras:

1. How to start investing: the essential steps.
2. When to start investing.
3. How to make extra money.
4. How to save money.