How to Get Better at Saving Money
Contributed by: @YemiAwop
If you live only once, how can you live for the moment if before that you didn’t prepare for it? Let me rephrase, when confronted with the option to spend and enjoy regardless of the consequences tomorrow versus having no guarantee of tomorrow but still preparing for it, what would you choose?
Live for the moment!
I’m sure many of you would choose to live for the moment. But if living for the moment meant clearing out your savings, it would be a sad moment if that account of yours was empty! To “Live for the moment”, although it has its merits can sometimes be a tad misleading. Your moment can be anytime, but if you aren’t prepared for it then you won’t be able to enjoy it. Don’t get me wrong, life isn’t all about saving and you can’t take your money with you when you die. But isn’t it better to be optimistic and hope for a long life where you’re financially secure through your savings, and the money which you don’t use can be leveraged to set up your loved ones?
Saving money is probably one of the most boring but most essential things we must do. It postpones that feeling of excitement or joy from spending your hard earned cash on everything and anything you want.But there is this “in the moment” feeling that stops us from saving the optimal amount. As a result we delay having a good deposit for a house, we delay having enough money for retirement, we delay being able to easily afford life’s treats such as good food, clothes and holidays.
What stops us from saving?
There are many barriers that hold us back from saving money. These can include:
- Shopping habits
- Living expenses
- Keeping up with the Jones’
Let’s go through each of them and think about how we can overcome them.
1. Shopping habits
Society these days plays by the rules of ‘if you want it, go get it’, hence the rise in credit cards, & payday loans. Even if you don’t have enough money to hand, these credit facilities just mean that you end up with debt sprinkled with interest. Be smarter about the purchases you make, and ask yourself questions like “Do I need it?”, “how many times will I actually wear this?”.
0% credit cards... risk free?Banks lure you in with low/zero % interest rate credit card offers in the hope that you spend so much that when the promotion period is over and the interest rate shoots back up you will struggle to pay and therefore succumb to extortionate interest payments. Like all things, there are pros and cons, and in this example overspending can lead to disastrous effects that hurt your future financial prospects. We will discuss how to minimise this risk and more in a future post...
This is particularly apt during sale periods. Remember how people were scrapping for a Polaroid TV and other “cut-price” electronics. Plenty of times I’ve bought clothes on sale because I liked the thought of myself wearing it, but I never did (I remember buying brown and black Nike Air-Dunks just because they were on sale smh…). On average how much do you spend on shopping a month? If it’s too high and interferes with your saving goals, then reduce it.
The time it takes to pay off your debts can be complicated as the interest can keep piling on. This becomes even more worrisome if this is a Wonga (payday) type loan as the interest can be in triple figures. If you are in this situation then you should aim to prioritise paying off these high interest debts. If your debt is mainly on credit cards then consider taking advantage of a zero per cent balance transfer deal, as this will help you consolidate and get back on the right track.
3. Living expenses
Rent, bills and living expenses will eat away at your chances of doing any saving. Regularly check your bank statements to make sure you aren’t being charged for unknown items. Justify the direct debits coming out of your account, e.g. do you use your Netflix account enough? Are you actually going to the gym, or is the membership there just for that 1 annual visit?
The usual “solution” to financing your living expenses is obviously to get more money, but as you earn more, your expenses increase too. Before you were content with coffee from the canteen, but as your income increases you’re now sipping on fine Indonesian medium roast coffee blend. Earning more doesn’t necessarily mean you save more.Keep this in mind. Similar to shopping habits, have a budget in mind and prioritise the purchases you need to make.
Those daily trips to Starbucks all add up. £2 coffee a day is £14 a week, £56 a month, equaling £670 a year. That's just for a black coffee; the cost for a latte plus that blueberry muffin could bring that to nearly £1k.It all adds up.
4. Keeping up with the Jones'
This is the barrier that is possibly the most critical because there are so many levels to it. I won’t go into it much but essentially don’t let people place you in financial downfall. Their situation will be different from yours, so always be aware of those who try to make you spend more money than you can afford. It comes down to mentality more than anything else. I know people who have put themselves in debt just so that they can wear the flyest clothes, eat at the nicest restaurants all to display a life that they don’t actually live. This short-term approach can lead to long-term financial destruction. Don’t be a victim.
So the question is, are you saving or are you saving enough? Whether you are paid a regular salary or freelancing it is important to have a saving strategy and to execute it. Think about the things you want in 1 years time, then 3 years, 5 years and so on. By doing this you can estimate how much money you need to start putting away monthly in order to attain these goals. Some of the excuses you may hear in your head.
“I don’t know how to get started”
“I don’t trust myself to save money regularly”
“I’ll have to give up things that I enjoy.”
Here are three simple actions to battle these thoughts:
- Open 2 savings account preferably with a bank different from your current account
- One should be easy access, ideal for emergencies
- The second should be a 1 year fixed account that you can’t easily withdraw from
- Decide how much you can regularly afford to pay into these accounts. Can either be a % or a fixed amount
- Treat your savings like it is a bill and set up a direct debit so that on payday, or any specific date in the month, your designated amount will automatically transfer into your savings account.
And that’s it. Although you may be giving up the things you enjoy today, all you are doing is postponing that enjoyment to tomorrow. Money is good and it’s there for you to spend, but aim to do it in a sustainable way. By doing this, you are actively setting up your future, rather than your short-term decisions doing it for you instead.