Cash Flow,  Making Money

The Three Rules Anyone Can Use To Save Money

Man counting some cash

An argument could be made that there is really only one way to save money, by spending less than you currently spend. However, I don’t think this observation is particularly helpful.

It’s quite easy to come up with examples of money saving habits, but each example only applies to some, not all. I wanted to come up with a few generic rules that can be applied to everyone.

Here’s my attempt at creating the three rules that anyone can use to save money.

  1. Budget
  2. Reduce recurring expenses
  3. Rework your debt

Before we get started, let’s set up an example that we can reference throughout the article. Here’s your imaginary finances:

  • Income: $2,000 per month
  • Mortgage: $700 per month
  • Student loan: $400 per month

Rule #1: Budget (of any kind)

First and foremost, a person must have an awareness of what they spend and where their money goes. If you want to spend less, you must first know how much you spend today.

The concept of budgeting is to in some way control your spending.

This can be accomplished in practice with many different methods. I’m going to highlight two of these methods. The easier of the two is sometimes called a “reverse budget” or also the “pay yourself first” method.

Reverse budget (pay yourself first)

Here’s how a reverse budget works:

When you get a paycheck, the first thing you do is take a portion of the paycheck and put it in some sort of savings account (I prefer an investing account).

Whatever is left over is what you have to live on.

So let’s reference our example. In order to keep things simple, let’s assume we get paid once a month. So on the first of the month our $2,000 comes in, and we take $200 of that out and put it into a savings account. That leaves us with $1,800 to pay the mortgage, student loan and all the other bills.

This is an idea which is very well discussed in a great book called The Richest Man in Babylon. The thinking is that if you save first, then use the rest to live on, then you will find a way to live on that amount. If you’re used to living on $2,000 a month and you suddenly got a pay cut and were forced to live on $1,800 a month, you’d find a way to survive.

The difference is that you’re giving yourself the pay cut.

And as long as you put that $200 you saved to good use, by investing it in some way, then you’ll become wealthier as the years go by.

The beauty of the reverse budget is that you don’t actually have to bother yourself with the details of what you spend your money on. You only have to ensure that you never spend more than your $1,800.

Traditional budget

However, in my opinion, a reverse budget is not a good starting place for someone who struggles with their personal finances. Part of improving your finances is understanding how you spend your money.

A traditional budget is a great way to learn how you spend your money.

The basic idea is that you categorize your spending and have limits in each category. Each time you spend money, you put that amount into one of your categories. If the total of your spending is less than how much you make each month, you’ll be saving money.

Here’s our example traditional budget:

  • Mortgage: $700 per month
  • Student loan: $400 per month
  • Utilities: $150 per month
  • Food: $400 per month
  • Entertainment: $100 per month
  • Miscellaneous: $50 per month
  • Total: $1,800
  • Income: $2,000
  • Monthly savings: $200

The result is the same as the reverse budget, but this time we are tending to the details. If I spend $150 at Starbucks every month, it will become very clear every time I write a Starbucks charge down in my budget.

Basically, if you have any really bad spending habits, then a diligent budget process will bring those to the light. Then you have the opportunity to change your bad habit.

Traditional budgeting is hard work. Kate and I have been on and off traditional budgets for most of our adult life. It’s been a bit like dieting or working out for us. We’ll get really into it for a few months and then it just kind of dies out.

I’m mostly at peace with this trend, because in my mind the point of a traditional budget is to show you where you have room for improvement. Once you’ve done that, then it’s probably OK to pay less attention and take a reverse budgeting approach. Then if you start to feel your finances getting sloppy again you can go back into traditional budget mode for a few months again until you shape back up.

Rule #2: Reduce Recurring Expenses

Budgets are great for highlighting those variable areas of spending like food, shopping or entertainment. These are the kinds of things you have direct control over.

But there are some things in your budget that will be exactly the same every month, things that are super predictable. For example:

  • Insurance (all different kinds)
  • Membership and subscription fees
  • Internet
  • Utility bills

These are the kinds of things that you don’t have direct control over. It’s not like you go set the thermostat to use up $10 of heating today. These expenses are coming your way and are very predictable, in some cases the amount will be identical every month.

It’s very easy to see your $20 car insurance bill come in every month and assume that there’s nothing you can do about it. And you’d only be partially right.

Yes, you need car insurance, and so you can’t get rid of that expense, but you might be able to change how much it costs you.

Go shopping

Your first tool for reducing these kinds of expenses is to go shopping for a better rate. You may not be able to eliminate the car insurance bill, but you might be able to lower it.

There are dozens of car insurance providers and I’d bet you haven’t checked your current rate against the competition for a while. Maybe you can lower your car insurance bill from $20/month to $15/month or $10/month. That may not seem like much but over the next year it could amount to a significant amount. And if you can repeat is for some other expenses you might be able to save $20/month or $50/month.

If you have more than one internet provider, then check out the rates of the competition. If you pay $50/month for HBO, but you could be just as happy paying $15/month for Netflix, then make the switch.

Just look at those recurring expenses and get critical!

Eliminate the extras

Sometimes you can completely eliminate a regular charge. This will usually be some type of entertainment subscription.

I know people who have subscriptions to Netflix, Hulu, Amazon Prime and Disney Plus. If you need to find ways to save money, you probably don’t need to pay for multiple streaming services.

I’ve looked through my bank statements in depth many times over the years, and almost every time I find a recurring expense that I no longer use. Finding and closing these membership fees are some of the easiest ways to save money.

Be more efficient

Another staple expense is utility bills. It may not be obvious, but you do have some control over how much you spend on utilities. A handful of small improvements can add up over time.

If you can find several ways to slightly reduce your usage of various utilities, you’ll save money. Here are some examples:

  • Use LED light bulbs
  • More efficient toilet
  • Install newer windows
  • Add more insulation to your attic

Many utility providers will come out to your home and give you a free energy audit. They will give you a list of ways to improve your home’s efficiency. When we did this we got several items that were simple and cheap to implement, and of course several that were difficult or expensive.

Still it’s nice to have a list of ways you can save on your utility bills.

Rule #3: Rework Debt

Few things in personal finance are more crushing than regular debt payments. Again, this is one of those expenses that feels as though you have no control, but that’s also not entirely accurate.

Debt can be reworked through refinancing or consolidation.


A loan has terms. It will have an interest rate and a duration. For home loans the duration is usually 15 or 30 years. Interest rates can vary significantly based on many factors, such as your credit score.

When you refinance a loan, you take a brand new loan usually for the amount you have left on your current one. Your new loan will have different terms from your original loan.

Depending on how you change your loan, you can potentially save money in two ways. Either by paying less interest over the life of the loan, which saves you money in the long run, or by having a lower monthly payment, which saves you money in the short run.

Here’s an example of each:

Refinance to pay less interest

Remember our $400 per month student loan payment? Let’s imagine it started as a $36,000 loan with 6% interest paid over 10 years.

You’ve been paying on it for three years already, so you have 7 years left. If you were to continue paying without changing anything, you’d pay $33,600 over the next 7 years ($400 per month x 12 months x 7 years).

But let’s say you got a new loan to pay off your existing school loan, and this loan had a 4% interest rate. Your new payment would be $500 per month, but you’d only end up paying $30,000 on your loan over the next five years ($500 x 12 months x 5 years).

By refinancing you saved over $3,000 on loan payments.

Refinancing to lower your payment

You can also save money now by lowering your monthly payment. Traditional personal financial advice is to avoid lowering your monthly payment because it often means you’ll ultimately spend more on the loan.

I’m not giving advice, but I do think there are situations where lowering your monthly payment is wise.

Here’s the example.

We have been paying $400 per month for the last three years on our $36,000 loan with 6% interest.

Instead of getting a new loan with a shorter duration, let’s get a new loan at 6% interest that will be paid back in 15 years. Our new loan payment goes down to $200 per month.

This creates new flexibility in our monthly budget, either to survive on, or to invest (the better option in my opinion).

You’ll end up paying more on the loan in the end, but if you can make great use of the money you save, then it may be worth it.

Loan consolidation

If you have more than one loan, then you can get a new loan to pay off all of your current loans.

Turning many loans into one loan can save in the same ways as a refinance. You can save by paying less on interest over the life of the loan, or you can save by lowering your monthly payment.


There are hundreds of ways to save. All the money saving ideas that are available to you can be discovered by doing one of three things.

  1. Budgeting
  2. Reducing your recurring expenses
  3. Rework your debt

If you look into your spending habits and turn a critical eye to your recurring expenses (and debt), you are bound to find some opportunities to save.

Happy saving.


I'm living the path to financial success and sharing everything I learn in this blog. I believe in the power of cash flowing investments, due diligence and time. This is my journey so far.

I learned everything I know from books, podcasts, conversations with friends and family and of course through real world experience as a cash flow investor. And I'm always pushing to learn more.

To see my investing timeline, check out our about page

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