“Don’t spend it all in one place,”…
That’s a familiar phrase many of us heard our parents and other respectable figures in our lives say, and as it turns out it's a practical, lifelong lesson.
It follows that having the intention to save is only useful if one actually follows through to actually save, set goals to save towards and have a tracking mechanism.
But no one said the savings journey is without bumps. We live at a time when instant gratification is celebrated, online commerce, mobile money and a range of cashless payment methods have made overspending even easier.
Recognising these and other difficulties that many deal with when trying to save consistently for their financial goals, we explore some tips to enable you to stay on track.
First things first, identify what savings goals you have achieved so far and decide whether to switch them up or set new ones.
Next, identify what goals you’re yet to achieve and make a list of what you are working towards achieving. This includes the timelines you’d want these goals to have been achieved.
You then have to prioritise the goals not only in terms of long-, medium-, and short-term, but also make a conscious decision to order them in terms of importance. This could mean eliminating some goals completely.
The process of elimination calls for a lot of honesty on your part, making sure your decisions are not based on emotions, are not unduly influenced by others and as rational as you possibly can. It does not hurt to seek the services of a financial advisor/planner to get this right.
It is a good idea to have separate savings accounts for different goals such as a fund for emergencies, an account for your short-term goals such as upgrading an appliance and an account for investment savings.
It's important to understand that despite popular opinion, visualisation is not futile wishful thinking.
It’s an exercise to contemplate the success of your set financial goals. For instance, picture yourself holding your title deed, enjoying your day because you no longer get debt notifications from creditors, and so on.
When you get into the habit of confidently picturing your goals, you are most likely to stay motivated to see them through.
And what better way to get a good picture of your ideal future than creating visual representations of your progress?
Here are some ideas to help you picture your goals;
Your tracking plan should then be matched with a savings plan that takes into account your progress so far, your income and the milestones you need to hit.
The decision to open a savings bank account, an investment account (such as a money market fund account) or these other five main places where you can keep savings, depends on what you set as long-term and short-term goals.
But once the choice is made on where you want to keep your money, you have to keep funding that savings account. Since the end goal can seem too far away, setting milestones along the way will keep you grounded.
However, grand your savings goals are, you have to start somewhere. If you are especially getting started on savings, you probably have been overrunning your budget and are yet to cut unnecessary expenses, starting small is the way to go. It will help you embrace the habit of saving.
But, you have to set milestones for when to increase the amount you save. If you follow the 50/30/20 savings rule, then the goal is to reach a point where you are comfortably saving 20% of all your income. So you could start with 5% and add equivalent increments every month until you get to 20%.
If you use other methods of saving such as saving a specific amount every month, you still have to set a timestamp when you need to increase this amount, and keep building upwards as you try and improve your monthly income.
While above we discussed a general savings milestone of gradually increasing the sheer amount you save from your income, remember you are saving towards specific goals.
Goals will largely determine how much we save, how urgent it is that we improve our monthly incomes and how much entertainment (wants) wriggle room we have.
But we have to be alive to the fact that everything worthwhile takes time to be achieved. As we wait to get to that ideal future, it is wise to break down the goal into smaller achievable mini goals that together add up to the main goal.
We can then align our savings amount with the demands of the next stage. While at it, every time we achieve the milestone towards the major goal, we can celebrate and reward ourselves.
Take the goal of owning your own home. The first milestone can be saving up enough to qualify for a Sacco asset financing loan (or just saving enough) to buy a land parcel, milestone two can be fencing out the land parcel, milestone three can be completing the foundation, and milestones four onwards can be created in line with estimates from the contractor up to roofing, finishing and furnishing the house.
Many people have stretched out their home ownership journey over five or more years without having to severely hurt their current lifestyles - and you can do so too with any of your other goals.
Milestones lighten the load that is a big financial goal, enable you to track progress better and make the entire process enjoyable.
Now that you have your goals reviewed, you have a progress visualisation and tracking system and your milestones are nicely drawn out, the next logical step is to make sure you do not miss a contribution into that savings account you chose.
And there is no better way to do this than to automate your monthly/weekly savings. You can place a standing order with your bank that automatically credits your chosen savings account with the amount you have chosen to be saving every month.
This is typically the most common way of automating your savings. If your monthly income comes through a Sacco, you will typically also get the same service. For a retirement savings account, these deductions are made by your employer and directly deposited before you have a chance to spend the money just like PAYE.
Automating savings works like a charm! It helps us avoid present bias - one of the biggest hindrances to consistent saving in that humans will inherently favour present satisfaction to future gratification, guaranteeing we save regularly every time we get paid.
Life is generally serious, the ups and downs of your financial journey are even more serious and we can really get stuck in the seriousness and take what you do every day to get ahead in life as chores.
But it doesn’t have to be this way. To cut wastage, save more and afford a better quality of life and own what you desire can have fun in it.
For example, say you're saving up to buy a home, you could name your account My Crib Account or My Castle Fund, as an example.
Why does this tip work? Because naming something makes it "real" to you.
According to psychologists, naming an item, pet or object is like having a nickname for someone you're fond of.
It nurtures a sense of closeness and personalisation: and if you think about it, as a child, you probably named your favourite toy.
As an adult, you probably have a name for your car, bike, favourite outfit, hairdo, accessories, even an experience and so on.
Why not give it a shot? It's not a far-fetched idea.
So, by naming your savings account, you personalise your account, which will have you think twice before dipping into your savings account for any other reason.
Consider any spare cash as additional income and apply budget rule no.1- pay yourself first. That is, set aside any extra money for your savings or emergency fund.
However, if you’d like to set aside this money for next month's shopping or towards a large purchase, or to give as a donation, set the money aside for precisely that, and follow through.
Available on online shops and brick-and-mortar shops: you can save more and get freebies that enhance your shopping experience at no extra cost.
One of the least known ways to save on costs and stay on track is to install a retail outlet's app or use their website. This way, you have access to Promo codes and discounts every time you use their digital shopping platforms.
In some instances, if you refer someone, you can qualify for a discount. Do retain your e-receipts. Review them to know if you’re still on track and how much extra cash you have to set aside for your savings.
We know all too well how shopping without a plan (i.e.) a shopping list, can quickly lead to overspending and delay the success of your financial goals.
To start, try these purchasing rules to follow any time you want to buy something at places you frequent; like a local kiosk, online shopping, supermarkets and street vendors:-