Your personal finances are the total of your financial habits. Therefore improving your personal finances is a matter of improving your financial habits. Habits are built over time but there are tips we can take heed of to jumpstart our ways into certain habits. The important thing is to get started. Here are 5 personal finance tips you may be missing in the development of better personal finance habits.

Variable savings rate

For those who have pursued multiple streams of income, the variable savings rate is a great trick to use to boost your financial capacity. Let’s start by looking at your primary source of income. The advice here is to save a set percentage of your income, usually 10% regularly. The variable savings rate is applied to additional sources of income. Say you find a freelance gig that pays consistently you would apply a more aggressive saving rate to your second income stream. If you’re saving 10% of your regular income saving 15 or 20% of your additional income streams will accelerate your rate of savings growth. There’s no such thing as too much here and depending on the adequacy of your primary income source a 100% saving rate on additional streams of income is advisable. The same thinking should be applied to windfalls.

Saving when you save

Saving in this case refers to when you buy things you intend to normally buy for less than you anticipated or budgeted. When we come across sales or discounts we end up with a surplus of money but where does that surplus go? If you are saving on your purchases but not directing the surplus cash to savings you are really not saving at all. You need to develop the habit of directing surplus cash to savings rather than to additional expenditure. The game of wealth is about how much money you keep, not how much you make, especially if you are just spending it all on other expenditures.

Investing what you save

Saving has a place in life and it is encouraged if not necessary to have savings. However, in most cases saved money remains the same in monetary value. Savings products do not grow money, at least not aggressively. Most savings products pay interest or rates of return that barely outpace inflation in the real world and hilariously underperform inflation in a country like Zimbabwe. Your savings can and should be split between things like your emergency fund, short term investments and long term investments. This is referred to in the personal finance classic The Richest Man in Babylon as putting your money to work for you.

Sweat the big stuff

There’s a great book titled The latte factor which we will look at in detail in the next point that instructs us to look at small expenses in our efforts to reduce expenditure. What many will quickly realise is that sweating the small stuff doesn’t make that big a difference. This seems obvious but it’s remarkable just how much this hits home. For many people, their biggest expense is their accommodation whether in the form of rent, rates and/or a mortgage payment.  Focussing on a small thing like your daily cup of coffee or favourite treat will make an impact of perhaps 5% on your expenditure. While your accommodation swallows somewhere in the region of 30 to 50% of your income, saving there could increase your disposable income by 20 to 25%. Results may vary.

Understand the latte factor

I just mentioned the Latte factor. My understanding of the latte factor as a principle is slightly different from what I have seen the latte factor being applied. The latte factor is not actually about small expenses. It instead focuses on expenditure that invites additional expenditures. In David Bach’s example, you will likely add other things on when you buy your daily latte factor which can as much as double your expenditure. An example of this on a bigger scale is (ironically) choosing to live in a lower rental area that demands you travel much further to get to work and thereby increasing your transportation costs. If the saving in rental is outweighed by the increased transportation cost you have yourself a bad deal. This is possible in Zimbabwe where fuel prices are steadily on the increase in US dollar terms. The latte factor encourages us to question expenditures and habits which lead to additional and often unplanned expenditures.

These 5 tips are meant to kickstart habits we need to improve our personal finances. If you have followed well you will see they work together. A variable savings rate and directing surplus cash to savings come together to increase your savings. The more you have saved the more you have to invest. Auditing your big-ticket expenses and being aware of the latter factor allows you to save money where it matters most or makes the biggest difference.