3 surefire ways to get into the savings habit in 2016
MANILA, Philippines – The start of the year is an inspirational time to change and begin new habits, helping you become that better version of yourself.
Saving money is one of the common New Year’s resolutions of many people. Here are some tips to become a frugal saver this 2016.
Setting your goals
A lot of people fail at saving because they forget to set concrete goals. Sure, that extra money is for "the rainy days" – but this reason is not strong enough to stand against common spending temptations. (READ: Why Filipinos spend so much to get the Starbucks planner)
Imagine seeing a great-looking pair of shoes on sale. You are aware that you are trying to save money, but then you start imagining wearing that shoes to a party, and getting compliments from friends on how it looks good on you. You are more likely to take out your wallet and impulsively buy that pair of shoes.
The solution: Give yourself a stronger reason to save money. For example, would you rather have a great-looking pair of shoes or spend a long weekend in Boracay? Or even better, how about that pair of shoes plus a new bag?
Think of compelling reasons to delay unnecessary purchases. Use those reasons as rewards when you achieve the ultimate goal of saving — which is to complete your emergency fund.
My recommendation is to have at least 6 months' worth of expenses as your emergency fund. If you spend P15,000 ($318.26) per month, then your emergency fund should at least be P90,000 ($1,909.57). When you start saving, that’s the target amount that you want to see in your bank account.
Once you achieve your target amount, go ahead and guiltlessly spend a portion of it to claim the reward that you set in the beginning. Book those tickets to Boracay, or finally get a pair of shoes plus a new bag for yourself!
Saving for emergency funds will not be easy. It often takes more than a year to complete.
But by the time you reach your target amount, saving money will become a habit and it would be easy to regain the amount you will spend for your reward.
I recommend setting small rewards whenever you are able to save a month’s worth of expenses. You can treat yourself to a day of pampering at a local spa or try that costly restaurant you have been meaning to try.
Making it automatic
People often go back to their usual habit of living paycheck to paycheck because they do not follow a saving plan. So now that you have your goal and rewards set, the next step is to strategize on reaching your targets.
The best strategy is to "pay yourself first." Paying yourself first means taking out a portion of your money and putting it in your savings account immediately after you receive your income. Do this before paying your bills or spending your cash on necessities.
For beginners, 10% of your income is a good starting point, but I recommend 30% or even higher.
If you receive P10,000 ($212.18) as salary every 15 days, and you have decided to pay 30% of it to yourself, then take P3,000 ($63.65) from your income every payday and put that in your savings. This means you will be setting aside a total of P6,000 ($127.31) monthly for your emergency fund, then budget and live off from the remaining P14,000 ($297.05) every month.
With this strategy, you do not have to consciously remind yourself to save money because you already do that at the start. It is less stressful because there is no need to curb your spending to have money left at the end of the month for your savings.
After paying yourself first, you are actually free to spend all that is left for both your needs and wants. When the day before payday comes and there is still some cash left in your wallet, feel free to splurge that remaining amount guiltlessly.
Furthermore, I encourage you to inquire at your bank if they have an automatic savings product. This is a service where the bank automatically transfers a fixed amount from your salary account into your savings account every payday.
This way, you do not have to think about paying yourself first at all because it is already automated.
If your bank does not have this, open a passbook-only, no-ATM-card savings account; so it will not be easy to withdraw your cash.
You can also put it in a time deposit or a low-risk unit investment trust fund once you have a substantial amount. Through this, you can enjoy higher interest rates than if it were just in a savings account.
Trying fun saving strategies
Paying yourself first is often enough to grow your savings, but if you want to build your emergency fund faster and make saving a little fun, here are a few strategies that you can also do.
This is a popular savings strategy where you save a set amount each week for the whole year. This amount starts small but progressively increases every week, challenging you to find ways to save more money every cycle.
This is a variation of the 52-Week Money Challenge with more flexible amounts determined by your financial capacity. Instead of weekly, the saving cycles occur monthly, making it easier to do than the 52-Week Money Challenge.
Set a day once a month when the only expense allowed is transportation. This usually means bringing lunch and snacks from home to work because you cannot buy food during this day. The goal is to funnel your usual daily food budget towards your savings account.
Do you have a piggy bank? Make its use more interesting by deciding on a specific denomination that you cannot spend and put it there at the end of the day. For example, everytime you receive a P10 ($0.212) coin, you are not allowed to spend it because you have to put it in your piggy bank when you get home.
If you want to succeed in saving money this 2016, set a target amount first. Set concrete and desirable rewards for yourself to stay motivated and win against spending temptations.
Save money as soon as you receive your salary. Pay yourself first is a time-tested saving strategy that has helped a lot of people to become savers.
Try several money challenges out there if you want to make saving fun and more interesting. – Rappler.com
Cash money in a leather wallet photo from Shutterstock
Fitz Gerard Villafuerte is a civil engineer who decided to quit the corporate world back in 2003 to pursue entrepreneurship. His blog, Ready To Be Rich has won several awards including the Best Business and Finance Blog at the Philippine Blog Awards.
He has also been recognized by Moneysense Magazine as among the Top 12 Most Influential People in Personal Finance in the Philippines. He is a Registered Financial Planner and a resource speaker for corporate and socio-civic organizations in the country, where he actively promotes entrepreneurship and financial literacy.