The first step to improving your savings habit is to honestly assess your financial health. After all, you can’t solve a problem if you don’t know what it is. Improving your savings habit will help you reach your short- and long- term financial goals. Before you can save, you need to develop a clear picture of your expenses and your income.
This will help you work out if you are spending more than you actually earn and help you to fix the situation by reducing your expenses – remember it really is easier to cut down expenses than it is to make more money.
No matter what you’re saving for – whether it’s for retirement, a new home or a new car, or just to cultivate a habit of savings – it’s important to start early. When it comes to saving, the best time to start is now.
There are five (5) steps that will help you start saving:
- First, come up with a personal budget or monthly spending plan. This will help you plan for expenses, reduce excess spending, save for future goals, have money put aside for emergencies and prioritize savings. Separate your income and expenses but make sure that you update your budget regularly as these figures may change from time to time. Your income will include things like your salary, bonuses, retirement income (if you have retired), income from rents and things like that. Your expenses may be food and water, housing, clothes, transportation, education, utilities (such as phone bills, electricity, internet and such) and personal (such as hair and personal care).Once you have estimated how much you will earn and spend, subtract your expenses from your income. If you have money left over, you can then decide how to spend, save or invest this left over money. If your expenses are more than your income, however, you must adjust your budget by reducing your expenses.
- Second, set realistic savings goals. Know what it is you are saving for and how much you need to save to achieve that goal. Make sure that the amount you are saving is meaningful but doable.
- Three, pay attention to your lifestyle; manage lifestyle inflation. Most of us will spend more money if we have more money to spend. As we move up in our careers, we tend to spend more. This is known as lifestyle inflation. Lifestyle inflation works against our ability to save and invest. You must remember that every extra naira spent now, is less money in the bank. People tend to spend more because they want to be and appear like other people – neighbours, friends, even family. But you must remember that these people may owe a lot of money for them to live the kind of life that they live. You need to decide whether you want to join these people in a life of debt or save to secure our families’ futures and our retirement.
- Fourthly, understand the difference between needs and wants. “Needs” are things that you must have in order to survive, such as food, shelter, clothing, healthcare, transportation and such. On the other hand, “wants” are things you would like to have, but that you do not necessarily need for survival. Sometimes it is difficult, especially these days, to tell the difference between the two but you must honestly do this if you want to manage your spending and save.
- Lastly, explore savings accounts. The easiest way to save is to put the money in a savings account. Try as much as possible not to touch the money you save. To make sure that you do not touch this money you can put it in a high yield savings or investment account that has higher interest rates. Since your money must stay in the account for a period of time, this will help you to resist any temptation to touch it.
These tips are really simple and if you stick to them, you should see an improvement in your savings.