Times are tough. Incomes are down due to the COVID 19 pandemic so you need to go on the defensive, The hardest part of any savings project is getting started, but once you set the wheels in motion and build up some momentum, it gets a lot easier.
Alcoholics anonymous have a 12 step guide and that has helped millions of people to get on the wagon. For savings, I have come up with my own 12 step guide - but I decided to round down to 10 which is an easier number to remember!
Step 1: Never Lose Sight of Why you are Doing This
Saving money takes work and commitment and it helps to always remind yourself why you are doing it. You are doing this to build a life of financial freedom, independence and fulfillment. This is not going to happen overnight, Get rich quick schemes to do exist – unless you are considering a career in illegal drug or organ donor trafficking. People become rich through hard, continuous and relentless work. The results compound over time. When you decide not to buy that pair of $300 leather boots and invest that money, that small sacrifice will compound into riches over the years and will help you achieve a state of financial freedom.
Step 2: Understand how you Spend
You need to understand your spending patterns. Given that the majority of modern day spending is done electronically, you have records in the form of bank, credit card and online payment statements. If you pay cash for something, keep a slip or receipt. This sounds like a monumental pain in the arse but you need to see this as an investment in your future financial freedom.
Step 3: Categorize Your Spending
Once you have your data, organize the numbers by categories, such as gas, groceries and mortgage, and total each amount. Use your credit card and bank statements to make sure you’re accurate—and don’t forget any.
I would recommend the following categories (in alphabetical order) 1) Communication – cellphone, internet, fixed line telephone
2) Education
3) Entertainment – alcohol, betting/lottery, digital subscriptions, going out, movies, other entertainment, software/games, tobacco
4) Fees
5) Food – groceries, other food, restaurants, takeaways
6) Household – electricity, furniture & appliances, garden, gas, home improvements, housekeeping, levies & taxes, municipal bill, other household, rent, security, water
7) Insurance – funeral cover, home insurance, life insurance, other insurance, vehicle insurance
8) Loans & Accounts – credit card payments, home loan payments, loan payments, car payments
9) Medical – doctors & therapists, medical aid, pharmacy, other medical
10) Personal and family – activities, children & dependents, clothing & shoes, donations, gadgets, gifts, holiday, personal care, pets, sports, hobbies, tax
11) Savings and investments
12) Transport – fuel, license, parking, public transport, tolls, vehicle maintenance, vehicle tracking
Tip: Look for a free spending tracker to help you get started. Choosing a digital program or app can help automate some of this work.
Step 4: Budget for Savings
Once you have an idea of what you spend in a month, you can begin to organize your recorded expenses into a workable budget. Your budget should outline how your expenses measure up to your income—so you can plan your spending and limit overspending. Be sure to factor in expenses that occur regularly but not every month, such as car maintenance. Here you need to calculate what you spend in a year and then divide that by 12. Be on the look out for other expenses that you pay quarterly, semi annually or annually – like college tuition and insurance. If the expense is paid quarterly, divide by 3, divide by 6 if semi annually and 12 if annually.
Step 5: Include a Savings Category in Your Budget
If we held the Olympic Games for the world's greatest savers, who do you think we would find on the podium? Singapore takes gold , Suriname (the smallest country in South America) silver, and China the bronze. Honorable mentions go to the Philippines, South Korea, Switzerland and Ireland. Singapore boasts a national savings rate of close to 50 percent thanks largely to the fact that residents pay almost no income tax. Singapore is an outlier, so I would suggest you aim to save 10 to 15 percent of your income.
Step 6: Find Ways to Cut your Spending
Do not let this make you feel like a loser but you may have to learn to say NO to your friends who want to go out partying every night. Identify nonessentials that you can spend less on, such as entertainment and dining out. Look for ways to save on your fixed monthly expenses like television and your cell phone, too. You can also downgrade on the brands that you consume – instead of Johnnie Walker Black, buy Red. You may also want to grow your hear and beard – imagine the savings in razor blades, shaving cream and barbershop visits!
Talking about barbers, here are some ideas for trimming everyday expenses:
Use resources such as community event listings to find free or low-cost events to reduce entertainment spending
Cancel subscriptions and memberships you don’t use—especially if they renew automatically.
Commit to eating out only once a month and trying places that fall into the “cheap eats” category.
Give yourself a “cooling off period”: When tempted by a nonessential purchase, wait a few days. You may be glad you passed—or ready to save up for it.
Step 7: Do it for the Planet
Many of the products we buy are exceptionally damaging on the planet. If you are the kind of person that needs additional motivation to save, and are concerned about the future of the planet, consider the following numbers:
This is what you can learn from this information:
Lesson 1: cut out red meat and each chicken – not only is red meat twice the price, but it uses substantially more water (a scarce and precious resource). Lesson 2: reduce your chocolate intake – it makes you fat and at the same time skrews up the planet.
Lesson 3: consider adopting a vegetarian diet half the week – again veggies and pasta are cheaper than meat and pollute less.
Step 8: Consider becoming a Minimalist
Minimalism is a movement that focuses on reducing the clutter in your life both in physical objects and in other distractions. People who embrace it find ways to eliminate the distractions from their lives and it opens up more opportunities for them in other ways and areas. Embracing minimalism does not mean that you stop spending money, but it can mean that you spend it on other things and your focus may change from making money to enjoying life. This may be a little extreme for some people, but if you have an addictive and extreme personality and are not a psychopath, this could be your new religion.
Step 9: Set Savings Targets
One of the best ways to save money is to set a goal, and you need to make the goal attainable. Start by thinking of what you might want to save for— then figure out how much money you’ll need and how long it might take you to save it. Be sure to remember long-term goals—it’s important that planning for retirement doesn’t take a back seat to shorter-term needs.
Step 10: Do not Save to Spend, Save to Invest
When I hear of people who save money to buy a Louis Vuitton bag, or a skiing vacation to the Swiss Alps, I am horrified. Luxury bags and vacations, in my opinion, are for people that can afford to pay for them cash from their monthly income. I believe the only reason why you save is to invest – or to pay off debt that is keeping your head below water (which makes it a form of negative investing). The objective of saving is to have resources to invest so that you can secure a life of financial freedom in the future.
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