Making saving a habit
AT THE BEGINNING of the year, you were asked to keep tabs on every cent spent, analyze your consumption versus your saving, and investing – a powerful exercise for people who have difficulty saving and investing money.
When spending is observed in such detail, changes are often made to reduce impulse spending or cut back excessive spending on certain items. Discipline and willpower may help you develop saving habits; however, observing and understanding how and why you spend money is more likely to help you make major positive changes promptly.
The exercise therefore helps identify ways of saving and investing – preventing all the funds which flow into your money basket during the year from flowing directly back out, like through a sieve. This article lists six additional ways to build a habit of saving.
1. If you are now starting, start saving with a fixed, relatively small amount – say, $20, $50 to $100 per month. Set the amount aside every month and do not touch it except for emergencies. Observe how this monthly saving accumulates to a tidy sum after six months, and pat yourself on the back. If possible, undertake to increase the monthly amount as a further commitment to entrench the saving habit.
2. If you are a chronic spender, leave your purse at home; just take a small bill, say, $10, your keys and ID, leaving the balance of your cash and your debit/credit cards at home. You will only be able to spend what you have with you.
3. Ask for a deal or a discount. Whenever you are about to make a purchase, make it a habit to ask about possible discounts. Some people feel embarrassed to ask; they walk around with legitimate discount cards and often do not claim the discount. Every little bit counts, so just ask nicely.
4. Keep a loose-change jar where you place leftover change from various shopping trips. When this accumulates, deposit it with your savings; it may seem a small addition but small bits add up to surprise the saver eventually.
5. When you have paid off a loan, continue to pay the same loan installment amount into a savings account; pretend you are still paying the loan. This really works well when the loan amount is significant, like over $500 per month. For example, after six months, for an original loan payment of, say, $800, you may be surprised to see about $5 000 in one place – on your savings account. Over a two-year period, you would have saved just short of $20 000.
6. Pay yourself first – into a saving account that you cannot easily access. Let the amount be deducted from your pay and sent directly to the account. Then you work with the net pay, what is left, and forget about that deduction. This is the ultimate saving measure for raising significant sums over extended periods.
In addition to discipline, willpower and understanding, these six approaches offer actions that can be followed as a routine in establishing strong saving habits. Saving is not about having a large salary; no matter how much you earn, you need to live within your means and save part of your earnings. Think carefully about what you want out of life, set challenging goals and make all your dreams come true by making saving a habit.
• Louise Fairsave is a personal financial management advisor, providing practical advice on money and estate matters. Her advice is general in nature; readers should seek advice about their specific circumstances.