There is no doubt that most people find saving difficult. Apart from the biting cost of living, there always seems to be a very low supply of money that is compounded by needs and wants that outweigh most people’s income.
This means that a majority of people find it hard putting a coin away. It also means that capital intensive goals are hardly met. To salvage this state of affairs, there are numerous saving methods that are tailor-made to help you save in small and manageable portions. But there also exists a more radical way to save and build up capital speedily. This is the method popularly known as starve and stack.
Starving and stacking was formulated by personal finance adviser Nick Vail. The strategy involves living well below your means and hiving off a significant percentage of your income until a particular financial goal is achieved.
“Unlike weekly savings and top-ups of say Sh100 to Sh500, the starving and stacking method involves saving large amounts that are as much as half your monthly income,” says Nairobi-based personal finance coach James Njenga.
Starving and stacking thrives where the saver has two incomes, or has a partner with whom they share financial obligations. This is where a spouse comes in handy! “When using starving and stacking as a couple, you can decide that you will spend the first 18 to 24 months living completely off on one partner’s income while saving 100 per cent of the other partner’s income,” says Vail.
“For example, instead of using two incomes on all family needs, you will limit your total spending to an amount that can be covered with one income.” Also, if you don’t have a partner, but have two incomes, you can dedicate part of and, or the total of one income to meeting your needs and wants. You can then stack the total of the other income, and, or plus a portion of your side income away as savings for a prospective goal.
Njenga says that in Kenya, you will do well not to stack up this amount in a piggy bank or non-interest bank accounts such as the current one that earns low or zero interest. “The least you can do is put it in an account that will earn you significant interest over the period you aspire to achieve your goal. Better still, you will do well if you can invest it in a mutual fund that has more competent interest rewards,” he says.
Unlike what you might fear, starving and stacking money does not demand that you earn a huge salary. It only means that you must live below your current means and maximise the amounts you put away. Granted, this tough effort will require you to stop aping the Joneses’ financial lifestyle. “Most people will not be able to pull through this method because they don’t live within or well below their means. They have no reserve funds, backup living expenses’ money invested in savings accounts or mutual funds, and have taken loans and mortgages that are more than 25 per cent of the money they make monthly,” cautions Njenga.
Automating your money is one of the ways you can ensure that you do not back off once you get started. “Once you automate your finances, the stipulated amount will be automatically transferred out of your checking account and deposited into your savings account the moment your salary is processed,” says Njenga.
Delink your checking, business, salary, and savings accounts so that you are never tempted to dig out the amounts you save. Vail adds that you can also automate your finances in such a way that the bulk amount you save increases bit by bit monthly, quarterly, or annually.