Don’t save what is left after spending; spend what is left after saving”
– Warren Buffet
Saving is a term which is common place and used often in reference to the preservation or setting aside of an item or thing for later. With respect to money, saving is that portion of money that is set aside and not spent or used at the initial point. Saving is a useful way of combating the uncertainties in life, which we cannot escape from.
The saving process requires a considerable amount of self-control and a willingness to preserve for the future. The golden rule of money management and by extension saving, is the principle of spending less than you earn (whether as an employee or self-employed).
An important aspect of saving is having a plan. You are more likely to save if you have something you are saving for.
Let’s consider a few essential tips you should consider when setting goals:
1. The goal has to be realistic
You would imagine that this should be a given but that is not usually the case. A goal would be realistic when the goal is within your grasp to achieve. While it is necessary to be optimistic, it is also useful not to be idealistic. While I am usually the first to encourage people to think big and dream bigger, I also know that these dreams and thinking should be done with a dose of honesty, wisdom, and reality.
2. The timeline set for achieving the goal should be sufficient
Following from the need for your goal to be realistic, it is also necessary that the time you have set out for it is possible. Let’s say you set a goal to buy land and build your house within 15months, while this may be achievable in certain instances, the timeline may be too short or overly optimistic. Firstly, there are processes in purchasing land including the legal due diligence, survey, building plan and approval amongst others. Furthermore, there are usually unexpected issues that may occur which could cause time and cost overruns. Basically, whatever timeline you choose should, to the extent possible, consider the possible issues that may arise. This does not mean that such difficulties will occur, but rather that you will be able to handle them should they occur.
3. Prioritize your goals
You may choose to prioritize in terms of importance, urgency, time and even cost; for instance, you may prioritize between buying a car in the next two years rather than to build a house or buy land. This could be due to an urgent need for a car, the relative costs of buying a car as against a house and the time within which to achieve the former.
A good way of ensuring you are able to achieve your goals is to break it down into sub goals or smaller tasks/portions. This would depend on the particular goal and if it can be broken down. This is the case for almost any goal, if you choose to learn to cook, write a book or even lose weight in six months. It might be easier to choose to learn a new dish weekly, write a chapter daily or set a monthly weight target. In this way, you have broken the goal to little achievable tasks.
For monetary goals, the same principle generally applies. Where your goal is to pay down debt or save a sum of money you could break down how much you would want to pay down or save weekly/monthly/or such other periodic timing. As it is your goal, you can then decide to increase the level of sub-goals or tasks or decrease these depending on your level of progress.
4. Start now!
If you are in your 20’s or early 30’s, there is an assumption that you have some time. Afterall, retirement would be more than 30 years in the future – on average. You may argue that while you have these great (mostly unwritten) plans for your future self -which may be to become a renowned author, inventor, extremely successful entrepreneur, (and the list goes on…) why start now and not in 5, 10 or 20 years? The simple answer is that starting now saves you time and money. Two precious gifts that you need now (if you did not, you probably wouldn’t be reading this article). Starting now means you can complete your goal within a shorter period or reduce the potential financial obligation and stress on your future self.
Saving remains an integral part of money management and financial independence. Why not start saving today! Consider your needs and wants to determine what you need to save for.
How is your savings plan going? Have you had challenges achieving your financial goals? Please share and I will be happy to assist.
