In our money management, saving should be a priority, the foundation of our finances. Save, first of all, to have a financial cushion that protects you from unforeseen events and once you have it, invest to see your money grow. In this way, you will take the first step towards your financial freedom because having financial freedom for “x” months will allow you to control your economy, live more calmly and happily, help you achieve your goals, take a sabbatical year, and not live so worried about whether it comes or not a crisis…
Saving is an attitude towards life with a great psychological benefit: it will allow us to live more calmly and safely.
It is important to create this habit. A habit implies decision and repetition, so to save you must convince yourself and incorporate it into your life. You can’t do the same thing you were doing until now. One thing to keep in mind: the amount you start with is not as important as maintaining it over time. And it does not depend so much on your income as on the amount you can keep. However, the reality is that we do not save enough…
If it is so important to save, why does it cost us so much…
Our brain is programmed not to save.
What do you prefer €100 today or €150 a year from now? If we were to ask this question in our environment, most people, despite offering 50% more profitability, would choose to have €100 today.
According to neuroeconomics, we prefer the present to the future. Our brain is oriented to satisfying our immediate needs, it is more difficult for us to see the benefit in the long term, and saving, as such, means taking something away from yourself now to enjoy it in the future. That’s why it’s so hard for us to save.
Saver or Spender
Almost all people, either because of the education we have received or because of our genes (since we were little we pointed out ways) have a clear tendency to save or spend.
Another fact that plays against us are that 95% of the decisions we make daily are made unconsciously and we only decide consciously 5% of the actions we take. Every day we take public transport or a taxi, we take food from home to work or we buy it from the machine…
The good thing is that saving is also learned, and the best way to achieve it is to make it a habit.
According to Parkinson, our expenses will expand to cover the total income. So we cannot convince ourselves by saying that we will save when we earn more. You will have verified for yourself that after a salary increase, we quickly adapt to spend more. That is why it is not so important how much you earn but how much you can keep.
Habits that will help you save
- Pay yourself first. Many people are used to saving “what is left over” at the end of the month. The result is that savings are reduced to little or nothing. Pre-saving is the infallible trick that will allow you to save. It consists of allocating, as soon as you receive your income, at least 10% to an account other than the one for common expenses. We will assume this amount as one more expense: our financial peace of mind bill.
“Don’t save what you have left after spending, spend what you have left after saving.” Warren Buffet.
- Systematize and automate. Following the line of the previous point and to avoid cognitive biases, automate your savings %. It may be difficult for you at first to live with 90% of your salary, but once you get used to it, you will be able to do it without problems. Think that many people live with less than you.
- Motivation. You must know what you are saving for; linking saving to emotion will make it easier for you to achieve your goal. Let’s take an example, if you want to save for a trip to London, you can put a glass jar with a photo of the place you want to go in a visible place, investigate during the previous time, look at excursions, restaurants, so you will strengthen the reasons for save money.
- Set ambitious but achievable savings goals. It is not the same to save for your retirement, your children’s studies, or a vacation. Set a deadline for your goals and reward yourself as you achieve them.
- Analyze your expenses in-depth and try to reduce all those that you think are unnecessary or superfluous. I am not saying that you have to save up to limits that do not allow you to enjoy life, because there is only one life, but that you try to find the balance between saving and living life.
- Keep an accounting every month of your expenses and income. It won’t take you long. Get used to saving the receipts of everything you buy in an envelope every day, at the beginning of the following month gather these receipts, take out the bank statements, and put everything in Excel or in any app or tool you use. This will help you tell the truth about your financial situation, and see if you are on the right track or if you need a little push or motivation to achieve your goals.
- Frugality. Acquire good consumption habits, stay away from compulsive purchases, and practice a simple, minimalist life… many times we do not need or do not use everything we buy, for yourself you will have been able to verify on more than one occasion how we have clothes in the closets, things, utensils… with the labels still on and that we have never used.
Start now, don’t leave it for tomorrow, thinking that you are young and will already save when retirement approaches. Don’t even tell yourself that you don’t save because you earn little, more people are earning what you do, who manage to save. So you can too.
And when you get discouraged and think that saving is impossible, think that your goal is greater than simple savings: it is the house of your dreams, starting your business, a great trip around the world, or freedom, success, and financial wealth… Create a broader perspective to prepare yourself financially for the future.
“The economy consists of knowing how to spend and saving in knowing how to save.” Orison Sweett Marden