What’s the most common savings tip that you’ve received from other financial advisors? For me, it was “for every penny that you make, pay yourself first”. They say that the ideal amount to save each month from your take home pay is at least 10%. That “save 10% of your pay” mantra was made famous by George S. Clason in his book “The Richest Man in Babylon”. It was an advice passed down by a dude named Algamish, to Arkad (who would then go on to be the richest man in Babylon). If you’re curious, check out the book here. I’d recommend it, it is a good short read and has lots of tips on how to better manage your finances.
When I first started working, like most of you, my salary wasn’t anything to shout about. My initial pay was RM2,000 a month, but luckily, I didn’t have any student loans that I needed to service. I did however have other commitments that I needed to manage each month. Being young and full of energy, I was really excited about making my own money and building my own wealth.
I started by setting out my monthly budget (here’s an earlier post I wrote earlier on the importance of a budget). I jotted down my income, and then in the spirit of wanting to be like the richest man in Babylon, I budgeted to set aside 10% of my income. Once that was done, I listed down my monthly expenses in excel (I made sure that it was auto-summed so that I could see how much of my income I had left to budget). As my expenses built up, I started to realise that what I had left was dwindling really, really, fast. I wasn’t even done yet and already my budget was in the red, which meant that I had to fork out more than what I made in a month. Coincidentally, to bring my budget back into positive, I needed to make my savings portion a lot smaller. I didn’t have the option of cutting down my expenses because they were already at bare minimum (my old Wira drank petrol like someone breaking fast after forgetting to drink during sahur). It seemed like my hopes of building a swimming pool of coins ala Scrooge Mcduck, were dashed even before I had begun.
Do you often find yourself in this situation too?
Most of us have been there, and let me tell you that there’s still hope! I figured a bit later that I put too much pressure on being able to save my 10% every month that I made the act of savings into a chore. And nobody likes chores. I knew that I needed to save money, I just had to figure out how to. It’s something that I needed to turn into a habit. After all, if I didn’t try to learn how to do it with what little I had, I wasn’t going to suddenly be good at it when I eventually have a lot.
How did I build up that habit?
Start with small change
Literally, start with small change. Every time I spent my cash, I would save up the small change that I got back. A few cents here, a few cents there. In the beginning, it didn’t seem like much, but let me tell you those small changes add up real quick. There used to be a time when I just dumped all my loose change in a tin can. I thought that they were too small, and were adding to the bulk in my wallet (they were full of cards, not cash, sadly). Then one day, the tin was full. I didn’t want to take out any of the coins from there, because again I didn’t want my wallet to bulk up. So, rather than let the coins just sit there, I decided to take the tin to a coin deposit machine.
I was actually very surprised at how much I managed to accumulate in a tin can (for reference, it was one of those big Julie’s biscuits tin). So from then on I kept all my coins, let them build up, and deposited them in my account once the container became full.
Later on I took it a step further. Asides from keeping my coins aside, I added in one Ringgit notes that I had left in my wallet at the end of the day to my deposit tin. I let that accumulate, and again once the tin was full, I would visit my local bank branch and deposit the money.
To make sure that I didn’t touch any of the money I had saved, I opened up a savings account, and stashed the ATM card somewhere else (as long as it wasn’t in my wallet, where I had easy access). So that’s how I got on with building up my own savings.
You may ask yourself now, what good would saving small change do? How much difference would it make anyway?
Turns out it makes a big difference!
Over time, your savings balance will grow. As you progress in your career and in life, the amount that you’ll be able to save will also grow. The best thing is that, since you’ve built up your habit from the beginning, saving any extra will be a whole lot easier. The most important change you’ll see is that you’d have convinced yourself that saving money isn’t hard. And this, this is the most important thing. Saving money shouldn’t be hard, you should start with what you have.
I personally believe that there’s no one-size-fit-all method to approaching how to save. Ideally, you’d want to save as much as you can every month (at least 10%). For most of us though, that might be a bit too much. So instead of putting too much pressure on yourself, and making money management something dreadful, start small, and build up from there.
This is the Smarties way.
With my friends and I here at MoneySmarts, we believe that small change can make a big difference.
So don’t delay, start today!