(This post originally published on 27 November 2007)
Saving money is a good habit to cultivate, but it can be so difficult for some of us. There’s just so many things we have to pay for.
We tell ourselves that we will save money when we receive that increment, or if only we had extra money. But that day never comes because there’s more we have to pay for.
Some of us may even be in debt, and saving money may be the last thing on our minds. Keep reading because this article has something for you too.
What we need is a concrete savings plan, and the motivation to get started today.
I have prepared a list of ten steps that will help you to start saving money:
1. Find Motivation
One of the most important criteria to be successful in achieving anything is to find the correct motivation. For example, you would be motivated to lose weight if you wanted to look good in your wedding dress.
You need to find a motivation to get yourself to start saving. Do you want to get and stay out of debt? Do you want to save up to buy something like a car? Do you want to have a sense of financial security?
There is no right or wrong motive. Your motivation is personal. It’s even better if you can find more than one motivation for saving.
To set your motivation, complete this sentence: “I want to start saving because… ”
2. Set a Goal
Once you have the motivation to start saving, you need to set a goal to achieve. You might ask me why motivation is not enough. Before you skip to the next step, allow me to clarify.
Setting a goal means setting a measurable objective. For example, your goal could be to save RM1000 within six months, or your goal could be to save RM10,000 from January to December. Your goal could be as simple as saving RM50 per month.
When you set a goal, you start to have a concrete idea of what you want to achieve. You won’t forget or lose focus halfway.
3. Plan Your Budget
The next step to start saving is to take a look at your budget to see how much you can realistically save.
Take a look at your expenses and see if any items are not necessary and can be converted into savings.
If you do not have a budget for your income and expenses, I strongly suggest that you start to prepare one. You do not need to track every single cent you spend (though that would be ideal), but you can start off just tracking your major expenses. The main idea is to see if you are spending more than your income.
After studying your budget you will have a general idea of where you stand financially.
Update: Read the 7 Step Frugal Beagle Budget
4. Set a savings amount
This should be easy. Look at your goals and your budget to see how much you can save.
Some would prefer to be ambitious, because they want to feel the satisfaction of saving by being creative in their spending and cutting expenses.
Some would prefer to start off with a small amount, and that’s perfectly fine too.
The point is to set an amount that you can realistically set aside for savings. Don’t save too much and then find yourself having to take out money from your savings later.
Remember the Frugal Beagle Black Hole Savings principle: “Once money goes in, it never comes out”. You should try your very best not to use your savings until you have reached your goal.
5. Plan a Schedule
This should also be easy if you have already set a measurable goal.
This is where you ask yourself how often you want to put money into your savings account.
Most people with a fixed income will do this when they receive their salary, so a monthly schedule will be natural. Children getting allowance or pocket money may want to save weekly or even daily.
Another important thing to consider is to discipline yourself to allocate money to savings first. This means setting aside this money before you pay your bills and use the money for expenses.
If you allocate money to savings at the end, you may find that there is very little left because the money has been used for other purposes.
6. Plan where to get savings from
You need to know where the money is going to come from. For most people, their savings are going to come from their salary.
This step is especially applicable for those of you who don’t have enough money to save. You may even be living beyond your means.
Well, the good news is that savings are still possible! The bad news is you really need to start making some tough decisions and sacrifices.
What you have to do is to start looking at your budget and start eliminating non-essential expenses. If that doesn’t work, you may even have to consider getting additional income.
Once you know where your savings money is coming from, make it a point to allocate income for saving from that source.
7. Identify a savings account
The next step is to identify where you are going to keep your savings. Keeping your money in a Milo tin under your bed is not wise.
An ideal situation is for you to start a separate savings account with a bank of your choice. I would advise you to refuse an ATM card for this account to stop itchy fingers from withdrawing the money.
This will help you to identify that this money is set aside from savings, and it also helps you to track your savings.
If you accumulate enough money, you could even put your savings into some low risk investments such as Fixed Deposit accounts or bonds.
Those of you frugal beagles who are more adventurous may have the desire to place your savings into medium to high risk investments such as unit trusts, stocks and Genting.
I don’t encourage this because saving and investing should be treated separately. This is a controversial topic so I leave this choice to your own judgment and experience.
8. Pay off debt
What do you do if you are currently in debt? Can you still save? The answer is yes!
What you have to do is to apply the same principles for saving, but instead of putting your savings into an account, you use that to knock off your debt.
The common advice from the experts is to save up an emergency fund of 3 to 6 months of expenses. After you have built up your emergency fund, apply the rest to paying off debt.
The idea is to develop a habit that you can continue to practice even after you have eliminated your debt.
9. Do it now!
Don’t wait, don’t procrastinate. Do something about it right now, even if it means taking a scrap of paper and starting on step one to jot down your motivations for saving.
Someone once said that the best time to start saving is yesterday.
The advantages of starting as soon as possible include:
- Cultivating good financial habits
- Take advantage of compound interest
- Being able to pay off your debt faster
After you have started to save, review your savings plan and goals at constant intervals. For example, you could review your plan every three months.
If you are falling behind, think of ways to catch up. If you realized that the goals you set are beyond reach, re-set your target. There’s no point being too rigid with yourself and then giving up altogether.
Think you can save more? There’s nothing wrong with saving more money and achieving your goal ahead of time.
I hope that these 10 steps will give you an idea on how to start saving. Remember that it’s not how much you save, but it’s developing the saving habit.
If you are married it would be a good idea to develop this saving plan with your spouse. In fact, it would also be a good idea to teach your kids to save.
With the proper motivation and planning, you will find that it isn’t that difficult to save money after all.
What do you do to start saving money? Please share in the comments.