PERSONAL FINANCE: Make saving as easy as1-2-3

“I am 32 years old and have never been able to save. I have tried to work with a budget to control my spending but it never works out. At the start of every year I have resolutions, make the sacrifice for a few months but then I eventually find something to use the money on e.g. an emergency, household item, etc. Please help.” Anne.

This is one of the most common dilemmas I see in my mailbox: How to save.

Many people want to save but they are unable to. Let us start by getting the basics out of the way: Saving happens when you consistently put money aside. It is not a one-off affair. It is a habit that you cultivate. If you earn money every month, the you should save every month.

Secondly, savings are put aside in an account that you do not use for your day-to-day expenses. Never mix the two. Your transaction or salary account is not your savings account. Always remember that.

Third, treat savings like a bill you have to pay. Immediately you get paid, remove it from your everyday account and transfer it somewhere else. This way, you get to see it accumulate.

Now that we know this, we can respond to Anne’s dilemma. Her problem is indiscipline. Without discipline, no one can save. However, she has to associate a benefit to this delayed gratification. It’s like food: We would love to eat junk food every day because it tastes good.

However, we make ourselves eat healthy food that may not taste as good because we want to maintain our weight, feel energetic and live well. If we are really determined to lose weight, we will even get on diets. It the same thing with money. Spending money is fun, but we delay our spending or save because of an associated benefit.

These benefits are what we call ‘goals’. We may desire a car, a house, school fees, or even a holiday. These are our goals. Anne should think of some goals that are important to her, and that make the ‘sacrifice’ worth it.

However, if Anne chooses goals that are way out in the future, it may take long to achieve them and really burn out her staying power.

For example, if you go on a diet and it takes too long to lose any weight, one might give up. So make sure to see short term progress in some way.

People who have been saving for a while have experienced the benefits of this habit, and so they don’t find it hard. Those like Anne who have been on and off have not experienced this, hence why a long term goal may not be the way to start. I started off saving lunch money. I realised that if I carried food from home instead of buying it, I could save over Sh100,000 a year. That was enough to go on holiday. I saved and went on holiday with it. The cost was lunch money; the benefit was a holiday. I created a new experience.

I had a client who, for most of her life, believed that investments were hard as was saving. She eventually saved for three months, invested these funds in the stock market and was able to start making sense of it. She doesn’t struggle so much with saving anymore. Saving just for the sake of saving may not work. Be clear on what the savings are going to do for you both in the short term and the long term.

Given where Anne is coming from, words like ‘sacrifice’ are very telling. I no longer consider it a sacrifice to carry food from home. I now associate financial and health benefits with this. If you meaningful goals attached to your savings, the delayed gratification is seen as a means to an end rather than a sacrifice.

We need to learn to look at the discomfort as stepping stones. I would also look at the amount Ann commits to saving. Many people set amounts that they are actually not ready to commit to in the heat of the moment.

Don’t make your goals unachievable by starting with outrageous amonts. Start with what you can commit to and build on that.

A dose of reality along the way will also help. We must move beyond our comfort zones. It will be important for Ann to realise what risks lie ahead if she doesn’t save.

What happens if she loses her job?

She will not be able to sustain herself. Many people started saving and investing aggressively because of going through circumstances that taught them this lesson quickly. The ability to save is the stepping stone for wealth creation.

Waceke runs a personal financial management and wealth creation programme, and couples are welcome. For details email [email protected] |Facebook/Centonomy