The reason most of us like to spend money is because it makes us feel good, in that moment. But the truth is, overspending, impulse buying, and credit card debt make us feel sick. Financial stress is no fun, and with a few simple, determined steps, you can get on the path to building savings you can access for an investment portfolio, holidays, or any significant purchase.
There are three simple steps to help you gain control of your money, rather than your money controlling you:
Associate freedom with saving rather than spending
Too many of us believe that life would be too boring, too strict if we lived within a budget. We convince ourselves that spending is more pleasurable. The first step to saving money (without feeling like you have been wrapped in a straightjacket) is to understand that creating a budget and living within your means actually creates freedom.
Whenever you buy something, anything, ask yourself: Do I want to help this café/shop/business get rich, or do I want to help myself and my family become financially independent? Because that is what becoming a saver is all about.
Remember: that $3.50 cup of coffee five days a week removes $910 every year from your income. Try rewarding yourself for saving well during the week: have a take-away coffee on Friday instead of every day.
Understand that spending and saving are habits
Just like spending, becoming a saver is a habit. Once you get out of the habit of spending, you’ll wonder how you ever threw money away. Adopting the habit of saving is easier than many people think.
If you can track your expenses, taking into account every expense, you will become conscious of what you spend. Keep receipts in a notebook or a spreadsheet and be ruthless: find out where every cent is going over the course of a week or even better, a month. Include every utility bill, every phone bill, mobile account, every unscheduled grocery stop, every snack, every Tim Tam. Track it all.
You will be amazed at how seemingly insignificant purchases add up to huge proportions of your income, and you will start to make conscious decisions about whether or not you want to spend money on those items. You will adopt the habits of a saver.
Create systems in your life to manage your finances
Here are some important first steps to put you onto a realistic, achievable savings plan:
- Set realistic goals. Start with small, achievable steps. Be flexible and do not punish yourself.
- Divide your income into different accounts before you see it. Have a portion of your income go directly into a savings account that earns interest. Ask your employer to do this automatically for you.
- Once you have $500 or more, put it into a high-yield term deposit so you cannot touch it and it earns better interest. Even $10 per week adds up over time.
- Set up one account for non-negotiable expenses. These are often things that can be or are automatically debited such as mortgage payments, broadband, phone bills, etc.
- Set up a different account (maybe even at a different bank) for negotiable, day-to-day expenses such as petrol (yes, it is negotiable: consolidate trips to minimise usage, go easy on the accelerator), food (buy sale items), social events, dining out, etc. When this account runs out, that is it for the week/fortnight.
- Reward yourself if you stay on track.
- Learn to say ‘NO’. If you can’t afford something, don’t buy it.
By actively following the habits of a saver for even just a few months, you will start to change how you view spending, and will realise the huge benefits in building up your savings. Start today.