(And How Not To Suck At It)
Whether we like to or lot, having more money can make life a lot easier and a lot nicer.
Of course, not all the good things in life require money and not all problems can be solved with money, but I don’t think anyone can disagree that having more money is better than having less money.
Going on holiday, getting qualifications, starting a family, owning a house, pursuing your hobbies, buying nice things, treating your friends and family . . .
It’s hard to do these things without money. I am not saying these things cannot be done without money. It’s just easier when you have a bit of money behind you.
And the nice stuff aside, there is also the practical element and the security it brings – having an emergency fund, knowing that you are covered in the event of illness or injury, knowing you can pay the rent or mortgage each month, clothe your kids, etc, etc.
Having money can bring peace of mind, reduce stress and help you enjoy life more.
Again, I think pretty much everyone can agree with that.
The thing is, having money is not just about how much you earn – it is, of course about what you earn versus what you spend.
To save money you need to spend less money than you make.
It’s not rocket science – it’s really that simple.
I always see it as is a bit like staying in shape. If you eat more calories than you burn, you’re gonna get fat. If what you spend is more than what you earn, you are going to end up in debt.
The truth is, most of us are not that great at spending less than we earn.
And it can take some effort and discipline to save money.
But like getting fit and keeping off the weight, it is mostly about forming the right habits.
But to understand the habits required, let’s look at a few reasons why most of us suck at saving money.
This is probably the most common reason people fail at saving money and that’s because most of us hate the idea of having to budget. It’s boring and constraining.
For some, the whole idea is complete abhorrent, but you need to understand that budgeting isn’t just about dictating what you can and can’t buy.
It’s about planning. It’s about understanding where you are now and where you want to be.
It’s about treating you household income as a business and managing it in an efficient and productive way.
You’re going to have to answer some tough questions, such as:
Do you actually make enough to cover your expenses?
Are you living beyond your means?
Are you too generous with your money?
Are there areas where you can cut back on your expenditure?
But if you can do that, I guarantee it will go a long way towards alleviating some of your money-related stresses.
There are different ways to budget and here are some examples. I don’t endorse any particular method and actually, if you do not yet budget, then any system is better than no system in place.
Not paying yourself first
In Europe and America, the social welfare safety net is full of holes and by the time most of us make it to pensionable age, we’re going to be on our own financially.
So, you need a plan and for most of us, that means tucking away a little bit each month for the future. This is part of ‘paying yourself first”, which is a commonly-used personal finance technique and the great thing about it is that it is super-easy to implement and it costs nothing!
Most companies can deduct pension contributions directly from your salary automatically and this is a great example of the pay-yourself-first method in practice.
If you want to make additional savings or investments, the best way to ensure it happens each month is to do the same thing and set up automatic transfers from the account your salary land in to a dedicated savings or investment account.
However much you are paying yourself, be sure to give yourself a raise whenever you receive one from your job!
Not distinguishing wants from needs
It’s easy to fall into the of trap buying things we don’t need. Entire business models are based on the consumer replacing their goods on a regular basis, particularly electronic goods, which are now an intrinsic part of our daily lives.
It’s rare to find someone (other than maybe your grandparents) that have a phone that is more than 3 years old. They get replaced well before then, even if they still work fine.
It’s the nature of the consumer economy and so we end up buying things we want, but don’t actually need. And right there is a major source of financial hemorrhaging that makes it easy to skip yet another month of saving money for the future.
If you keep buying sh*t you don’t need, it’s always going to be hard to save money for the things you really want.
Saving can wait, right?
You’ve probably heard about the power of compounding interest and the key to that working is time. So the longer you put off saving, the harder it becomes to build wealth.
I used to put off saving because I was only able to afford a small amount each month and so didn’t think it was worth it, justifying it by saying that I would start when I had a much bigger amount available to save.
It’s never too late to start saving, but today is always better than tomorrow and yesterday is even better than today. Even putting small away smaller amounts on a regular basis is worth it, because the little amounts add up and it also helps to form the habit.
If you’re struggling to get to grips with saving money, try the above tips. I use them myself and it really does help!!