Lots of people understand that they need to save to protect their financial future but don’t do that or do irregularly and unsystematically that leads to poor results and dependence on governmental help in the future.
So why don’t we save money?
We can now discuss various types of excuses we can think of. Like “I don’t have enough money to save” or “I have time - will start later”. But in reality it’s all just false objections, because majority have already tried once or even multiple times to start saving but it never led to positive results. And I’ll tell you why! The real reason is that you don’t have a habit to do that.
How to create a habit to save?!
There are 4 basic principles to create a good habit. And of course I believe that saving is a good habit, that will deliver you lots of benefits in the future. Visibility - Attractiveness - Simplicity - Satisfaction.
So you need to ask yourself 4 questions: how can I make it visible? How can I make it attractive? How can I make it simple? How can I make it satisfying?
Visibility
First step to create a habit to save you need to think about your values and answer the question “What I want to be?” Wealthy, going shopping and dining without paying much attention to prices, good house, good medical service, I want to choose myself when to retire and what income to have. You need to create a picture of future yourself and to desire it.
Second - create a challenge - a rule of actions with specific terms. Like “During next 6 months I WILL save 10% of all income the same moment I receive the money”. Write down your intention and follow the rule. When situation (salary) happens - I react (transfer to saving account).
If you are not sure when to start forming a habit to save - try first day of week/month/year. People tend to start changes at beginning of time period, as their hope for positive changes are higher these moments. If we have a hope - we have a reason to act. New start always increase motivation.
If you have an existing financial habit connected to receiving salary - use it to create a new habit to save. If you pay the rent, bills, debts, buy something new after you receive salary - create a rule like “After (current financial habit), I will transfer money to saving plan”. The key is that you connect desired action with something you’re regularly doing
You can also help yourself by adding reminders to your space. A note on the fridge, a reminder in the phone, a picture of rich/poor retiree on the door.
Attractiveness
You need to change the attitude for saving from “I have to save” to “I want and I can save”. That will make it much more attractive.
Saving money is associated with limits or event sacrifice. If you put money aside now - you could spend and please yourself less today. But you can associate saving with freedom if you understand one simple thing - spending less today increase future capital.
Adding attractiveness to saving will increase the chance of making it a habit. Try to save with one of the saving apps. Bank, insurance companies, fintechs are competing for your attention by creating attractive forms of savings. There are even game-styled ones.
Сombine business with pleasure - create a reward for yourself when you transfer money to your saving account: buy a new clothes, a video-game, go to fast-food, go to cinema or whatever you like.
So your rule could be upgraded to “After receiving salary (current financial habit), I will transfer 10% to my saving account (habit we need), and after that I will go to cinema (habit I like)”
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Also think about people around you. If everyone around you save for retirement, probably you would do the same, but if your folks are laughing at you when you try to explain you plan to create passive income and retire early - the idea of saving wouldn’t be attractive. Find and surround yourself with like-minded people who have the same interests and good habits you’d like to get.
Indians are well-known savers. It’s a nation’s peculiarity. Kids see how their parents and other people behave including saving and copy this habit in adult life. They start saving from the very first income without dependence of its size.
Another example - employees of large multinational corporations. The companies offer and motivate their employees to participate in corporate saving (or retirement) schemes. And the percentage of participants are really high - significant majority join the program as they see that everybody around is also saving money, even these programs aren’t often the best available solutions. It’s not only attractive as socially expected behavior but simple, so we can go to next point, which is
Simplicity
Saving today is easy technically. There are plenty of solutions from banks, insurance companies, fintechs. You can create an automatic contributions from your income or spenditures, that could be allocated to some assets. You don’t need to go to bank office, call broker, send a check or hide it somewhere at home. Just a few clicks on your phone are enough nowadays.
Don’t try to find THE best solution/ instrument for saving. Find a one you like and start using it. Later you could change if something better occurs. Go to actions (saving) from planning (choosing best instrument).
You can use an independent financial adviser, that can recommend an instrument based on your situation and requirements. But don’t trust advisers who work free of charge - it means they get paid by institutions they “recommend” (obviously - sell).
Financial adviser could also help to create a financial (we often call it “Retirement”) plan, calculate the capital needed and develop the strategy how to build it. Using the written plan will add the next principle needed for a habit -
Satisfaction
Saving for future today will not deliver immediate satisfaction and joy. It’s a long-term project. So you will enjoy the results of this habit only in few decades. If we want to create a stable habit to save - we need to add some immediate gratification.
One of the best motivation is to see the progress. Feeling success is a signal that habit delivers a result and worth to continue.
A written financial plan together with modern tech apps will show you the progress on the way to final goal. Believe me in 2 years when you see how much you saved and how much the capital grew - you would feel a real satisfaction of saving. That usually lead to increase savings.
Discipline
You tried it all but still didn’t get a habit? You understand that it’s good to save for retirement but still not doing this.
There are solutions for people with lack of discipline. You can use one of the instruments with contribution commitment with automatic collection of funds from credit card. Usually 1,5- 2 years of commitment are enough to see the positive results and create the habit.
Growth to your savings!
P.S. At Astra we specialize in creating personal retirement plans and finding the best solution tailored for each individual client. You can contact me for details.
