Saving is the most important financial decision you will have to take if you really want to succeed as an entrepreneur. Like so many things in life, setting money aside as savings is a habit that needs to be developed. If you want to be financially free, you need to do what you can to encourage a savings habit.
The habit of saving must become a way of life for you, instead of some sort of burden.
Have you ever noticed that no matter how much you earn, you find a way to spend it? We all seem to have a way of living up to our means and some of us also find a way of living beyond our means.
Most of us find ourselves in the rat race no matter how hard we try to escape. Our financial cycle sounds like this: Work, get the money, spend the money, work. You have to move from just for money to a world where money works for you. You cannot achieve without making saving a habit.
In this article, I am going to share with you practical ways you can develop and build the habit of saving.
Know Your Earnings and Expenses
In order for you to achieve optimal result from saving, there are things you have to consider first. First, you must know your earnings and expenses. What does your monthly paycheck looks like and how much do you spend every month. There are software programs such as Quicken and MS Money that can help you figure out your expenses, and for the frugal, there are free financial web sites such as Finance Yahoo! and MSN Money as well.
Once you are done with this, you have to decide a convenient percentage of your paycheck you can save. Whatever that number is, you’ve got to stick to it. In good times and bad. No matter what.
Pay Yourself First
Most people don’t think they can afford to save. But of a truth, we can’t afford not to save. We all find a way to raise fund when real emergency shows up. Why not treat savings as a necessary emergency for the future. When you receive your paycheck, part of the money goes to the government as tax, some are used to pay bills and other expenses, why won’t you pay yourself? You worked for the money, hence you are entitled to it. Make the first bill you pay each month. Stick to the percentage you had decided on earlier.
But here is the key to success: you have to make your savings automatic. Once you don’t even see that the money is coming in, you’ll be surprised how many ways you find to adjust your spending. Just like all your other bills, there’s no way around. You must pay it month after month, unless you’re in debt.
Set Achievable Goals
As someone who is developing this habit, you need to set goals. One of the biggest issues is that you may not have a goal. You just have an idea that you need to save money. It’s hard to stay motivated when you have no clear idea of what the money is for. When you find yourself here, it is much easier just to spend it.
Set a goal for the money you save, what do you want to get done? Do you have a pressing problem you would like to solve? Then make this your starting goal. If you have multiple problems or desires, start with one goal. Once achieved, set a second one.
One of the major reason why lots of people fail to develop the habit of saving money is because, they lack the discipline required to effective pull through with the plan of saving. Discipline helps you to pay attention and stay committed to your plan. Once you have a plan in place to save some money over a period of time, you need discipline to see you through it. Some distractions may come up along the way, but discipline will enable you pull through.
Always Track Your Expenses
You probably have an idea of how much you spend, but unless you keep track of every cent, that idea is inaccurate at best. Here’s a simple way to track your expenses. You probably carry a phone wherever you go. Note everything you spend in your calendar. When you get home, copy everything to your personal finance tool. At the end of the month you’ll know exactly how much money you’ve spent and on what.
Check where your money goes. Reduce and remove costs. The first time you analyze your expenses can be shocking. The more the better. This is your first wake up call.*
Saving demands that you forgo some regular spending routine, the truth is that once you have made up your mind to start saving some money, you will have to make some sacrifices in order to provide for your savings. By sacrificing some leisure, it means you are making some money available to save. In this case, you will have to differentiate between your needs and wants. One of the best ways to save money is to avoid spending on things you don’t need. Besides, when you sacrifice, you should also have it at the back of your mind that it is for a temporal basis. That is why it is important that you have a time limit for your saving.
Earn More Save More
To get this point home, I will give an explanation using Benartzi and Thaler’s Save More Tomorrow plan.
“Benartzi and Thaler first tested the Save More Tomorrow plan almost 20 years ago at a company in the Midwest where the blue-collar workers said they couldn’t afford to squeeze another dime out of their paychecks. But the researchers persuaded them to let their employer automatically divert 3% of their salaries into a retirement account, and then add 3% more every time they got a pay raise. The result were amazing! After just five years and three pay raises, those employees who thought they couldn’t afford to save were setting aside just under a whopping 14% of their paychecks! And 65% of them were actually saving an average of 19% of their salaries.” – Tony Robbins in Money: Master the Game.
Save a fixed percentage of your income. This way, as your income goes up, so will your savings. The percentage you will save should depend on your earnings, ideally, it shouldn’t be less than 10%. You can increase the percentage with time. As time goes by, make the number mean something by investing.
To succeed as an entrepreneur, you need to develop the habit of saving. Saving is a very important habit we have to develop, but you need to find ways to keep yourself motivated. Try out the above steps, stay motivated, and you will succeed.
I will share with you a recommended passage from George Samuel Clason’s classic 1926 book The Richest Man in Babylon: “‘A part of all I earn is mine to keep.’ Say it in the morning when you first arise. Say it at noon. Say it at night. Say it each hour of everyday. Say it to yourself until the words stand out like letters of fire across the sky. Impress yourself with the idea. Fill yourself with the thought. Then take whatever portion seems wise. Let it be not less than one-tenth and lay it by. Arrange your other expenditures to do this if necessary. But lay that portion first.”
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