It's amazing how much of your salary you can save if you make this your top priority. You can't live like this forever as you'll go crazy, but if you want to really work hard and save a large chunk of cash over a year or two for a particular goal, here's how we saved 85% of our income for almost 2 years so we could start our own business. (Caveat, our employer provided us an apartment at the time so we didn't pay rent, so clearly that would drastically reduce the %)
The secret all lies in envelopes.
It goes without saying that the first step is to cut all recurring bills that are unnecessary. Cable TV, magazines, etc., anything you pay every month but can cancel and stop paying.
So…buy a box of cheap envelopes and label them like this:
Food week 1, Food week 2, Food week 3, Food week 4
Spending money week 1, week 2, etc.
Gas money week 1…
Make an envelope for any bill you pay in cash
One empty envelope (will explain later)
Then…set a reasonable but small budget for each item…we did $50/week each spending money and $80 for the two of us for food (groceries) but this will vary on the person/situation. At the start of each month go to the bank and pull out all the money you need to fill every envelope. Then, put your bank cards away and never use them. Bills you pay online are accounted for but of course you don't take cash out for these.
Each week you take the grocery money and ONLY spend that amount on food…making adjustments based on sales, seasonal items, etc. to get as much food as you can for that amount of money. If you need to spend more this comes out of spending money (i.e. bottle of wine, case of beer)…same goes for gas and spending money.
When the money is gone for the week…too bad. No more cash until the next week and the next envelope. You'd be surprised how easy it is to spend $0 if you really have to.
When money is left over from a week you put it in the empty envelope…and this money can only be used for one thing: fun. Don't put it in savings, save it up and then piss it away…this gives you more incentive to use less of your spending money to have some to put into the fun envelope.
Seriously, when you limit yourself to $50/week you really notice how often you spend $2-5 on gum, coke, coffee, crap you don't really need…you get to where you save all $50 for Friday to spend on one night out.
Try to have at least 2 days a week you spend $0, these really add up over the year.
These are the basics but it really does work. Other keys are finding free ways to entertain yourself…books from the public library, exercise, replaying video games instead of buying new ones….get creative, you can find ways to entertain yourself without spending anything.
We no longer do this as we're back to a more normal life now, but the beauty is that although it's been 4 years since we stopped, we are much more careful now with our money after having really tightened the reigns for 2 years.
The envelope system makes it so much clearer where your money is going than a spreadsheet, because when you go all cash, you can't spend money that isn't there.
Forgot to add: to really work you need to avoid all “big” purchases…no new TV, new lawnmower, etc…same goes for clothes. You'd be surprised that you can go a couple years without buying a single item of clothing and you don't die. Your closet probably has enough clothes for 5 years, it's really only shoes that break down.