14 June 2013

Habitual Saving

You don't need to be in dire need of financial help to start budgeting. In fact, it is essential to know the importance of budgeting to ensure that you're aware of your finances and plan for the future. A lot of us have legitimate reasons to complain about inflation, rising costs of housing etc and we worry what will become of us in 35 years. Many people try to save but fail to do it on a regular basis thanks to the ease of swiping credit cards. It's not so much the determination to set aside a fixed amount monthly but rather a habit that we need to get into when it comes to saving money. So, the question is how can we get into the habit of saving?

1. Know your spending habits
You need to know what you're spending on. It sounds simple, doesn't it? Most of us could probably give a good estimate of how much we spend monthly. However this mission gets difficult if we were asked to break it down into categories such as clothes, food, leisure etc. I started taking note of what we were spending on by looking through bank statements, bills, any direct debit set up and keeping receipts for at least a month. The whole point of this is to look at the generic spending patterns you have and know where the money is going.

You’ll realise that there will be recurrent expenditures such as (but not limited to):
 • bills (electricity, gas, water, internet, phones)
 • council tax (if applicable)
 • rent
 • transport fees
 • food

Once you’ve added them up, hopefully the outgoing is less than the incoming!

2. Identify things you enjoy
Set aside 15 minutes one evening and write down a list of things you enjoy doing or like. Next is to identify the things you don’t care about but spend out of habit and the things you truly care about. A friend of mine was spending €1.90 from Mondays to Fridays on coffee. Assuming there are 22 working days a month, his monthly allowance for work coffee was €41.80. He decided that it was more than what he would like to spend on coffee. Hence, he stopped having his daily coffee treats. He decided that buying a coffee was something he did out of habit and not something he really enjoyed. It was merely a routine he got himself into.

I’m not suggesting that we all give up coffee and be anti-social. On the contrary, I believe that we can still keep up with our social lives without compromising our budget. If you’re one of those who needs a good coffee on a daily basis, why not bring your own coffee to work? Most workplaces provide a good pantry/kitchen where you can heat up your lunch or make drinks these days. Instead of having a total “makeover” of your spending habits you could start by taking baby steps. Treat yourself to coffee three times a week and not five. Soon you’ll break out of the habit.

3. Be realistic
After you’ve paid for the essentials, look at the amount you have and determine what a realistic amount to set aside each month is. To me, a realistic amount is one which still allows me to enjoy my day to day life without breaking the bank. I’m not particularly fussed about dining at restaurants every other night. In fact I am capable of surviving an entire week without eating out. But that’s because I enjoy cooking and have the luxury of time to do so. I understand that saving is such a personal thing and it does require you to make changes to your lifestyle (whoever who tells you otherwise is talking nonsense). But you have the last call. You decide for yourself if you’re willing to make those minor changes and save the money you need for better purposes.

4. Set a goal
Don’t we all need a goal to be motivated? Well, I do anyway. There must be a reason for you to want to save and I call it a “goal”. I have long term and short term goals when it comes to saving. Long term goals could be a deposit for a house, retirement, investments (generally goals that I’ll achieve in 5 years time or more). Short term goals could be the ability to go on frequent holidays, shopping for shoes (I love shoes and I really don’t have enough of them!), home deco etc. Once you know your specific goals, it will not only motivate you to save for them but you will also have a better idea how much you want to put aside monthly.

Be careful not to “borrow” from yourself to achieve short term goals. If you see a pair of shoes that costs €100, I’m sure you’re able to put it on credit or just pay immediate cash for it. The “if you won’t be broke, just spend it” mentality is the precise cause of one’s failure to save. Didn’t our parents teach us to save our pocket money to buy our favourite doll/ transformers or sweets when we were little? It’s the same concept. Getting a pay cheque doesn’t mean we go absolutely crazy and buy every pretty thing in our way.

5. Pay yourself
Once your employer has paid into your current account, the next thing you should be doing is pay yourself in your savings account. This isn’t a new trick but setting up a standing order would be a great start. It’s best time to pay yourself is a couple of days after you’ve been paid (taking into account public holidays and weekends). As your savings build up they should grow faster too (only if bank interest rates aren’t this low now!). On transfer days, I check that the money has been successfully debited into the savings account and that’s it. However small an amount you’ve set aside, give it a couple of months and you’ll be surprised at how much you’re actually saving in the long run.

These are the exact five tips that I use to help me get into the habit of saving. Saving isn’t something we do for a couple of months and then stop. It is a habit that we need to get into to make our dollar stretch further. On my money saving journey, I’ve also learnt more about myself and others. I know what I value more these days and things that I couldn’t care less about. If you have additional tips that you would like to share, please comment below. I would love to know what else works for you guys.