How to Build a Solid Saving Habit
One may argue that the ability to save money is the key to financial success. Why? Well, if you cannot put money aside, you cannot invest; if you cannot invest, you cannot grow financially.
It’s that simple.
Therefore, of all the financial skills you should learn, saving is probably the most important.
We all generally know that saving is important, so why do we struggle to do it? Most of us have several reasons for our inability to save – most of which are mere excuses. Let’s go through some of the more common reasons people give for being unable to save (plus brief explanations of why these are actually excuses):
· I do not have enough money to be able to save. When I’m earning more, I will definitely start saving. If you are unable to put aside money when you have a little of it, you will equally be unable to put some aside when you have more of it. Saving is a habit. It’s something you need to get used to doing. Therefore, if you are not used to putting aside even Kshs. 100.00 per month, how will you ever be able to put aside Kshs. 10,000.00? Even when you are earning more, it will “hurt” to do it because you are used to spending everything you have.
· I have too many responsibilities. I have no money left over at the end of the month to be able to save. To quote Warren Buffett, “Do not save what is left after spending, but spend what is left after saving”. You need to make saving a priority, and the only way you will be able to accomplish this is by budgeting. You know all the things you need to do with your money – allocate the funds in advance. Include the amount you would like to save in this budget. No matter how little you feel you can spare, budget for it. Remember, the idea is to get into the habit of saving. When you have more, you can increase your savings amount on the budget.
· I will start saving once I have paid off my loans. This is normally a catch-22 situation because often the reason we end up borrowing is that we don’t have savings. In the absence of savings, whenever you have an emergency, you are forced to borrow to sort out the issue; and the worst part is, just because you are currently servicing a loan doesn’t mean emergencies or unforeseen events will stop happening. It’s just how life is. Therefore, if you aren’t saving while you are paying off your debt, guess what you will do when you are next faced with an unexpected expense? You will be forced to borrow some more, digging yourself further into the hole. So, regardless of your debt situation, save. Start small – it is the habit that will count in the long run.
I could continue listing the reasons/excuses forever– they are endless. Of importance is that you need to find a way around this sort of thinking (you can read about how to develop a wealth mindset HERE). and just start doing it. I will now go into some of the ways you can begin to start developing a solid savings habit.
One of the places that many Kenyans have been able to successfully save is SACCOs. I believe that this is for two main reasons, which I would encourage you to emulate in your own savings plan. These are:
· Most SACCOs automate the process of collecting savings. For most SACCOs, your contribution is collected via check-off, standing order, or other similar automated methods. For you to achieve savings success, you should automate your process where possible, where it isn’t possible, at least ensure to PAY YOURSELF FIRST. By this I mean, that you deduct your savings amount before you begin the rest of your monthly transactions.
· Even the SACCO’s that do not automate recovery have a system of accountability. For most SACCO’s, someone will follow up with you if you are late with your contribution – some will even go as far as charging you a penalty for late contributions. If you feel you lack sufficient self-discipline, get an accountability partner to help you stick to your savings goals. This should ideally be someone who, like you, is trying to save and to whom you will be answerable.
To begin to immediately build a solid savings habit, here is the summary of the actions you should take:
1. Operate on a budget and include savings in your budget.
2. Start immediately - even if you start with a very small amount.
3. Where you can, automate your savings. Even if you don’t automate, prioritize saving by paying yourself first. Remember the words of Warren Buffett – Save first, spend after.
4. Get an accountability partner who can keep you motivated and on track with your savings goal.
Once you get into the habit of saving, investing will be the natural next step. You will be able to start thinking of how to make the most of the money you have kept aside to ensure you begin to grow financially.
Would you like to know your current financial health, check out our Financial-Check Up program HERE.