Saving money is a necessity and one of the most important skills to learn as an adult. Unfortunately, with high living costs, constant commercials and unlimited spending opportunities, putting money aside month after month can be close to impossible to some people, even on a decent salary.
The problem with saving money is not a lack of savings products. Financial institutions offer an endless range of savings plans and investment schemes, catering to all kinds of needs, time horizons, amounts and risk tolerance. One thing that some people don’t realize is that you can help fix the real problem – poor discipline, budgeting and money management skills – by opening a savings account and committing to regular contributions.
Setting Your Goals
Saving money becomes easier once you have formulated the goals. Putting money aside now because you want to buy that new car or go on the dream holiday later sounds much better than sacrificing an evening out just because you “need to save money”.
There is no limit on the number of savings accounts or plans a single individual can have. If it helps your money management, you can set up one account to save for your kid’s college, another one for your 20th wedding anniversary round the world trip and so on. That said, don’t go overboard and make your savings too fragmented, because that would be harder to manage and you would probably pay more in fees than necessary.
Some savings accounts actually enable you to set up “virtual envelopes” to specify and separate the individual goals while keeping the money in one account. Alternatively, you can make an overview of the goals and balances in a spreadsheet or on paper. Regardless of the means, the key is to know why you are saving and how much you need.
Controlling Impulse Spending
Randomly spending too much on things we don’t really need is the greatest obstacle which keeps many people from saving enough. A savings plan can be a perfect tool to address this problem.
The very act of opening a savings account is enough for the more disciplined of us to reduce spending and start to put some money aside. Unfortunately, this sudden wave of responsibility can be short-lived. Setting up a savings plan with fixed regular monthly or yearly contributions can help in the long run. You can even arrange the money to be transferred to the savings account automatically as soon as you receive your salary every month, in order to protect your money from yourself.
The key is to make saving a top priority, equal in importance to paying the bills, and not just something that would be nice if you had some money left at the end of the month.
Consistency and Long-Term Thinking
Savings plans vary in terms of time horizon. You can find simple products for a year or even less, as well as plans for 10 years or more. If you are saving for your children or grandchildren, for example to help pay for college or to give them a nice nest egg when they reach adult age, there are savings plans designed specifically for that. You can start saving as soon as the child is born (and sometimes even earlier) and continue for as much as 15 or 20 years.
If you are saving to build a reserve for your retirement, the time horizon can be as long as 35 or 40 years. Keep in mind that saving for retirement is quite specific and there are numerous opportunities for tax savings and bonuses if you use the right products in the right way. Most people find a financial adviser or retirement planning expert helpful.
Whatever your purpose and time horizon, when it comes to saving money, time and consistency are the keys to building wealth and fulfilling your dreams.