Not sure how to save money? Follow these five easy steps.
Investing is not a complicated activity only for rich people. It’s a great way to create financial security and everyone – even you – should get started, sooner rather than later. The hardest part is overcoming the initial barriers to saving.
Our excuses are our biggest barriers to saving
While it may be really tough to make space in an already-stretched budget, taking small steps to develop a saving habit, and a lifestyle of saving, will make a big difference to your future.
One way to get started is with a spending detox. A detox is a process followed over a period of time to rid your body of toxins. Likewise a spending detox will help you rid yourself of extravagant spending habits. We eat a lot of unhealthy food that we don’t need. Similarly, we spend money wastefully. In our instant gratification culture we get a rush out of spending.
The spending detox is about getting control back by reining in this unnecessary spending and breaking the habit of swiping your card willy-nilly. The good news is we are not talking cold turkey here; rather a gradual change in attitude to the way you spend.
Follow these 5 easy steps to start saving:
Step 1 – Find an accountability partner
If you are going to make a change or commit to doing something different, find someone to do it with. Studies show that having an accountability partner when you exercise makes it more difficult to duck out of sessions, inspires competition, and forces you to check in with someone other than yourself about your progress. Find a friend who is keen to join you on your quest to save money; alternatively broadcast your plan on social media. Nothing like a public announcement to keep you committed.
Step 2 – Find somewhere safe to store money you are not spending
Before you get started you need to make sure you have somewhere secure to keep the money you are not spending. Don’t overthink this – it could be an envelope or a moneybox, or a separate bank account if you have one. (This is just a short-term measure to prove a point to yourself.)
Step 3 – Take control
For the next week, whenever you are tempted to buy something that is not absolutely essential, stop yourself from spending. Instead withdraw the money and store it somewhere safe or, even better, transfer it to a separate bank account. This is about making small differences: it’s about not buying that coffee every morning, not giving into laziness and opting for a take-out or not buying that ‘bargain’ pair of shoes that you don’t really need.
Step 4 – Tally up
At the end of week one, tally up your savings. Compare your score with your accountability partner. Share your results with your friends. Are you surprised? Could you have been stricter on yourself? Are you noticing any changes in your behaviour? A week is a short period, but seeing your results so far will hopefully encourage you to challenge yourself in the days ahead.
There are different opinions about how long it takes to break a habit or start a new one. Some studies say it takes 21 days; others say it can take up to 60 days. Aim for a month and see how it goes. Be a bit stricter each week.
Step 5 – Make the pennies work for you
If you begin with the end in mind perhaps the sacrifices you are making will feel more meaningful. As you go through this detox, start thinking about your savings goals, how long you have to reach them and how much risk you are willing to take on to help you earn investment returns. We will discuss some of the investment options available to you in Part 5.
The aim of this exercise is to prove that holding back a bit can yield results
It may take less sacrifice than you think to gather the minimum debit order investment for a unit trust or a retirement annuity. And that minimum amount will almost definitely be less than your DSTV subscription.
Remember, investing even a small amount each month, rather than spending it, can make a big difference to your long-term financial well-being.
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