Money is like oxygen, we have to have it, and saving is a key part.
It does not matter how much - as much as $6,000 per month, or as little as $60 per month, any saving is good saving.
Saving gives us a sense of achievement, more personal freedom, access to cash in emergencies, less workload pressure, less employer pressure, and maybe allows us to retire sooner.
Your savings need some organisation as most people probably need to 3 to 5 different pools.
However there is more than one way to go about it.
1/ A Budget
A written up budget suits a lot of people.
2/ Pictures or diagrams
If we don’t act and get started, we put ourselves behind the 8 ball.
3/ Super Saver Emma and Bernie
I met Emma before she was married and I can vouch for her “super saver” status. Here is her system (unabridged ).
My attitude towards savings, and money in general, has always been to think of it as a flexible concept rather than dollars and cents. I’ve never been keen on micro-budgeting, so I stick to three broad strategies.
The first is that I set a “zero” in our bank account that is way above rock bottom; our zero these days is $10K (it hasn’t always been so high!), meaning that we avoid going below that amount with the same vigour we’d avoid going below the real zero in our account or into debt.
My second strategy is to paint a broad picture of our financial situation in conservative, or “generous,” terms several times a year. I reckon our income by rounding down - by a lot. For expenses I round up – again by a lot.
This creates generous, but practical, margins between our income and expenses. What’s great about these margins is that I almost never have to dig into my “zero” (aka 10K) or my savings. If costs pop up unexpectedly, I’ve already accounted for them in my margins.
My final strategy is to scrape the excess in our bank account into investment. I include a savings amount as an expense in my broad budgeting but I hardly need to do it because once our regular bank account goes above our designated limit of $20K I scrape off the top $10K or so and send it into long-term investment.
This means that we’re fairly regularly adding to our investment without worrying about what the market is doing. When the money is there, we invest it.
Thank you Emma for sharing your super system.
Waiting v costs
Save $1,000 per month for 25 years at 6% net return and it will grow to $697,000.
Procrastinate for five years and then start;
- $1,000 per month 20 years at 6% net return and it will grow to $467,000.
A difference of $230,000 !!!!
If you save $1,000 per month at a 6% return, after 12 months you will have put in $12,000 and it will have grown to $12,397.
Why only $397 profit ? Because some money has only been in 1 month, some only 2 months and some only 3 months, and so on – money needs time to work.
Save $1,000 a month at 6% for 10 years and it will grow to $176,660, or $56,600 profit.
Savings and investment is all about time, which requires patience.
“The better off have small TVs and big libraries, and the less well-off have big TVs and small libraries.” – Zig Ziglar
It is not hard to figure out why.
“An investment in knowledge pays the best interest.” - Benjamin Franklin
This article was supplied by Alan Clarke who is the author of a book entitled “Retire Richer” which is a practical guide for everyone age 25 to 85.
Alan also writes regular articles on www.acfs.co.nz
Alan is an independent authorised financial adviser (AFA) and his disclosure statement is available on request and free of charge.