Savings strategy I use which is perfect for the not so disciplined
Savings is the first step to accumulating wealth. If one can’t save, one will find him/herself hard to breathe and there definitely won’t be sufficient for emergency uses (e.g. repairs) or even investments or retirement funds.
However, with that said, it is appalling to learn that there are a bunch of people who find it difficult to save. Or worse yet, think that they are saving but in actuality they are not.
How much to start with? That depends on what is your living expenses and commitments. Check out my post on how to identify what is your living expenses and make sure to trim what you can to give you breathing space for savings. What you can spare is what you save.
The Concept of Saving
Saving begins with a change of the mindset.
I’ve seen a lot of people “save” the balance of what they have after spending for the month. This concept alone is flawed because chances are there won’t be much left by end of the month for you to save. Why? We are creatures of spending. That means we naturally are good spenders. And being good spenders, we will be happy to spend as long as we see a balance in our bank accounts.
Personally, I encourage to flip that around. Start the month with savings first, then spend the balance. If there is any remaining by the end of the month, it goes into the savings as bonus! This works to ensure that we do save + control our spending.
Now, have you heard of people (typically investment gurus) claiming that “you are losing money by saving money”? That is true only IF you keep your money in your bank account without a plan. Refer to my post where I explain how I segregate my savings into different accounts to ensure that it is put to use appropriately.
The way I see it, savings is the first step to wealth accumulation and growth. This is because by saving we will be able to have the funds to allocate / distribute accordingly.
The (slightly) Disciplined Salaryman Method
Firstly let me introduce the method that I use.
- Identify 2 key days in a month: Salary Day (The day you get paid your salary) & The Last Night (The night before your salary comes in)
- Set the amount you’d like to save per month. I’d recommend a minimum of 10% and, if you can afford to, (based on your monthly commitments) 50% would be ideal to hasten the wealth accumulation process.
- On Salary Day, the amount you have dedicated to your monthly savings gets transferred to your “Touch-Me-Not” and/or “Buffer” account. Out of sight, out of mind.
- Also on Salary Day, perform your “wealth distribution”. This involves the payments for bank loans, credit cards, insurance, utilities, fees, etc. Here you will also be performing your monthly dollar cost averaging investments, if any. *Make sure to check your payment due dates (usually for credit cards) so that this is possible, else you would need to have a different day to make your payments as well
- Live with the balance for the rest of the month. *If you don’t have a balance after the above, then you will need help. Drop me a note at the bottom of this site and I’ll be happy to take a look for you*
- On The Last Night, if you have any balance amount, it gets transferred to your reserve account as your bonus savings. Now your bank account will be empty and ready for Salary Day.
The Super-Undisciplined Salaryman Method
If you know that you are not disciplined with your money, then it is time to introduce some automatic mechanism.
First is to ensure you have your multiple bank accounts set up.
Second is to get yourself familiar with the banking function called – Standing Instructions.
Third is to find out all available Direct Debit functions.
Then, follow the steps below:
- Identify 2 key days in a month: Salary Day (The day you get paid your salary) & Payment Day (The day to make your manual payments)
- Set the amount you’d like to save per month. I’d recommend a minimum of 10% and, if you can afford to, (based on your monthly commitments) 50% would be ideal to hasten the wealth accumulation process.
- Set up a standing instruction to transfer the amount you have dedicated to your monthly savings to your “Touch-Me-Not” and/or “Buffer” account on Salary Day.
- Set up standing instructions for any fixed monthly payments, such as mortgage loans, on Salary Day.
- Apply for all available Direct Debit for your expenses (e.g. phone bills, electricity, insurance).
- Set up Standing Instructions / Direct Debit for dollar cost averaging investments. I recommend to set the date for this to be on Salary Day.
- On Payment Day, perform your monthly manual payments that do not have Direct Debit or a fixed amount, such as credit card payments. I recommend this to be on Salary Day, if possible, but you will need to check when is your payment due dates for these manual payments.
- Live with the balance for the rest of the month. *If you don’t have a balance after the above, then you will need help. Drop me a note at the bottom of this site and I’ll be happy to take a look for you*
- Every month repeat Step 7 & 8 only.
An Alternate Mechanism – 100 days of Gold
If you are up for it, I’d like to introduce this special savings project to you which I learnt from someone quite recently.
The idea is pretty simple – Save $1 on day 1, and increase by $1 every day up to day 100.
You can create a bank account where you make the transfers daily or physically deposit cash into a jar / bucket.
By Day 100 (around 3.5 months), the accumulated savings will be $5050.
Word of caution: You need to ensure that you have sufficient funds to perform such a task and might work better for people who have freelance income
Choose and Start
You might have a savings policy that already works for you. If so, then good for you!
If not, then feel free to choose either of the methods above. It will take time to ease into the savings habit, but most importantly is to start the journey.
Give yourself some breathing space and know that you are saving for your future!
If it works for your (or if it doesn’t), feel free to drop me a note. I’ll be glad to hear your side of the story of success or how we can tweak it to make it work for you!
