While it is not the sexiest part of managing personal finances but time and time again you will be reminded of its importance. For the young in particular saving doesn’t seem like an immediate need even if the importance is understood. Global Money Week focuses on imparting financial lessons on the young and the 2022 theme is “build your future, be smart about money”. We can agree that saving, when done right is key to achieving just that. So how do we go about increasing our savings in 2022?
Budget for savings
The first thing is to budget for your savings. There are many tips we have shared about budgeting and including saving in your budget is one of them. The trick here is to put saving at the top of your budget list rather than letting them come at the end of your list. There is never enough money for everything and when we are confronted with this reality we tend to cut off things at the end of our list or those that are not urgent. Saving is never presented as urgent but it’s an important change to make to improve your savings.
Automate your savings
When you do budget for savings the experts recommend you also automate the savings. Saving what’s available is not always the best plan. So you are recommended to save from the “top line”, from your income. Setting a percentage, for example, 10% also makes your saving smart because it matches your savings to your income. So whether your savings go to an emergency fund, income protection, investment or paying off debt they will increase to match your current income.
Set reasonable savings goals
One of the greatest enemies of your financial management is setting unrealistic goals. I cringe when I’m talking to people about getting their finances right and they take a good concept, like saving, but take it out of their reach by setting an unrealistic goal (based on their existing behaviour). I’m not saying it’s impossible to take your savings from -10% of your income (borrowing) to 50% of your income. Far be it from me to say your goals are unachievable. However, it is highly unlikely to achieve such a goal immediately. So set reasonable goals and upgrade them as you go.
Save in categories
Saving without a goal is like starting a journey without a destination, how will you know when you’ve arrived? To put it another way, when we save for the sake of saving, if something comes up that is urgent it takes precedence over our non-existent reason for saving. So we not only need saving goals but it’s best to categorise our savings. Decide how much of your savings will go to each goal. It keeps the goal firmly in mind and prevents you from being side-tracked.
Track your expenses
When I work with people on improving their finances this is the first port of call. Tracking your expenses doesn’t seem important to many because they already know the money is gone. However, I encourage tracking because it not only shows where your money goes but also tells you a lot about your character. When I first embarked on this journey I didn’t have enough money to save or invest. Tracking my expenses helped me realise that in any given month 25 to 30% of my money went to helping people. There’s nothing wrong with helping people but doing so and leaving yourself one payday from financial ruin isn’t smart.
Pick the right tools
This will hit home with many Zimbabweans given our colourful history with money, savings and investments. This is not to lay blame on the doorstep of those who lost the value of their money savings and investments in 2008 or 2018. Knowing that savings or investments in whatever form can be wiped out gradually (as in 2008) or overnight as in 2018 we know to be cautious with our choice savings tools. Keep abreast with the options available and the changes in the landscape and what they mean for your tools of choice.
Avoid credit where possible
Things are tough for many young people everywhere and sometimes ends just don’t meet. This is a reality that very few are fortunate enough not to be confronted with. Some debt is however avoidable and this is the borrowing we need to stamp out. Credit, if it becomes a habit can be debilitating to your finances through what is called the debt trap.
Make it regular
Finally, human beings are creatures of habit. We find ourselves repeating cycles of life whether that is days, weeks, months or years. For your saving to be successful it is better off approached as a habit. It is better, from the psychological viewpoint, to invest one 12th of every paycheque than aiming to save your 13th cheque (bonus) in its entirety. And that’s if it comes. So make your savings as regular as your income. Some systems encourage saving as often as daily and you can’t argue against that.
Increasing your savings will give you the financial strength to make decisions that improve your life. It could be reacting to problems or taking advantage of opportunities. Getting better at saving is a must for all.