The Habit of Saving

Being able to save money is one of the stepping stones to creating a solid financial foundation. You may want to save money for  a down payment, education, emergencies and so on – but at the end of the month there is no money left to put into the savings account. Has this ever happened to you? You bet! It happens to the majority of people. But you don’t want to be part of this group, do you? Let’s take a look at some ways to kick-start and grow your savings.

 

Before we proceed, I assume you are here because you are serious about building wealth. You have probably read articles that say “Easy ways to save more”, but the truth is, it can take a lot a lot of discipline and sacrifice to reach your financial goals.

 

Goals

 

Start by thinking of where you would like to go with your savings. What are you aiming for? You are sitting in a row boat and you are ready to paddle, but if you don’t have a destination you are thrilled to get to, you will lose motivation. Some worthy goals people have are saving to buy a home, to invest, to have money for retirement and to pay off debt. What’s your goal?

 

You will want to limit your goals. Sounds strange doesn’t it? The problem many people have is that they set too many goals which can lead to stress and frustration. Narrow your objectives, create realistic goals and achieve them one by one. Confidence and commitment to your goals will increase as a result.

 

You come first

 

You don’t want to work the whole month to have to give up all your income to pay all your bills and spend the little that is left on some entertainment. You want to start thinking of you as the first person that needs to get paid when you receive money, not your bills. Keep in mind that by paying yourself first and putting some money aside, you will enjoy financial freedom in the future.

 

Some of the benefits of paying yourself first are:

• Saving becomes a habit – Creating the habit is the primary purpose. Avoid spending money in this order: Bills, fun, savings.
• Makes saving a priority – Once you start paying yourself first, you are starting to condition your mind to think that saving is important.
• Peace of mind – Knowing you have money set aside for emergencies or unexpected events can help you stay calm and sharp during tough financial times. You will avoid many headaches and stress!

 

Automate Savings

 

A great way to pay yourself first is to have an automatic transfer from one account to another. There are a couple of ways of doing so: Go to your bank, set up a savings account and ask them to set up an automatic transfer from the account you get paid to, to your new savings account. Alternatively, give the payroll department at work your new savings account information and ask them to deposit a certain percentage of your pay into it. Payroll software allows accountants to enter what percentage of your income goes to what account, which is great because you can set a savings target easily (e.g. I want to start saving 3% of my income). Do not feel hesitant to talk to payroll, this is a method used by many people. What’s most important is to take action now!

 

How much do I save?

 

It depends. If you know you are struggling financially then start small. Make a goal to start saving 1%, then 3%, then 5%, and so on. Many financial coaches recommend putting aside at least 10% of your income. The higher you aim the quicker you will reach your goal. Tip: If paying off debt, still start small, but focus on paying off your debt as fast as you can.

 

Ignore new income

 

Many fall for the trap of spending more as they earning more. Trick yourself into forgetting that you have more money coming in. I learned this a couple of years ago when I started a business that currently brings in some side income. I use “Mint” to track money coming in and out of my accounts. When I look at my app I can see how much we have earned as a family versus what we have spent for the month, and this is useful when the wife and I are thinking of going shopping. I find that if I know there is money sitting around it is more likely that I will spend it.

 

A while back I became a bit concerned that our savings weren’t increasing as much as they use to. So after realising what was going on, I took the business account off of Mint. The result? We naturally started spending less as a family. It’s all in your head I tell ya! Time went on and I forgot about that account.

 

A great surprise came when I was doing my taxes for last year and I remembered to account for that income. Turns out I had saved a year worth’s mortgage payments! We ended up some buying stocks, putting a good amount in our savings account and also did some renovations we wanted to get done around the house. These are the type of benefits I refer to when I say you will reap the benefits in the future when you start saving today.

 

Mint & Budgeting

 

Have you ever looked your bank account and said “how did we spend that much money in the last couple months?” Look no further! Mint, among other online services, tracks all transactions and automatically categories them for you. When you first set up, Mint will scan transactions from the past 2-3 months and will ask you if you want to create a monthly budget. If you do set up a budget, Mint will set a target of 15% (or what you choose) to decrease your spending through the new budget.

 

 

 

Mint provides charts for expenses, income, net income over time and a few more useful visuals. By using a system like Mint you can set budgets that will minimise your spending and you will be able to see your finances all in one place.

 

Emotion and spending

 

Anthony Robbins, famous for his Personal Power and Unleash the Power Within seminars/books, talks about how emotion affects how we act and react in our daily lives. Many of the choices we make everyday are based on the emotions we hope to obtain from taking a certain action. For example, if I attach a negative emotion to going out for a run (say, I hate being hot and sweaty), I will do all I can to avoid running. If I attach a positive emotion to running (say, I am going to be fit and feel great), I will pursue that action. Robbins refers to this as attaching pleasure/pain to our actions. So how does this connect with spending money and saving?

 

Thanks to millions of dollars of marketing we have been wired to feel pleasure when we buy certain products (think Apple). Once we feel that pleasure we will continue to pursue it as it makes us feel good. This is exactly what you need to be aware of. Stop and think what you spend money on that brings you lots of pleasure, but may be draining your income. For example, going to the movies is one of my favourite past times and I used to go quite often. I could easily spend over $80 for the family. I realised that going to the movies was one of those activities that brought me pleasure but at times it went against my financial goals (don’t get me wrong, enjoy life but be smart about it!)

“A wise person should have money in their head, but not in their heart.” – Jonathan Swift

Understanding how your spending habits connect to your emotions will help you differentiate between your wants and your needs. When it comes to saving, you should condition your mind to think that saving will bring you great benefits in the future. Individuals often think about the now, wanting to have the new car model right away, the largest TV out there, etc. Why? They seek the pleasure and satisfaction of buying these items. So, what can we do to resist the temptation? Attach a strong and positive emotion to saving. Picture yourself holding a certain amount of money in your hands, and feel how you will feel then. This type of exercise will give you motivation to save!

 

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