How do you manage your monthly finances? Maybe the following scenario sounds familiar.
You have every intention of saving but you pay your essential bills – mortgage/rent, insurance and utilities – then you spend on the non-essentials that take your fancy over the course of the month – meals out, takeaways, clothes, gadgets – and by the time the end of the month comes round, you don’t have anything leftover to save. And so it goes on, month by month.
If this is you, you need to pay yourself first.
Pay yourself first and create a savings habit to build wealth
The pay yourself first method switches your priorities around so you spend what’s left after saving rather than saving what is left after spending. It’s a tiny shift in habit which results in a huge change in perspective and over time, brings massive advantages.
Advantages such as not having to live hand-to-mouth each month, building up a buffer of cash for emergencies, saving enough to treat yourself to a fantastic holiday and accumulating a retirement fund which will guarantee your future financial security. What’s not to like?
The beauty of pay yourself first is its simplicity. You set up an automatic payment to yourself as soon as you get paid and before you pay any other bills so that every month a fixed amount of money is taken out of your everyday bank account and into a dedicated account (and later on, when you’ve amassed enough, into a more effective savings vehicle).
Saving comes first, then essentials, and non-essential spending comes last.
This strategy, which some people call reverse budgeting, creates a consistent savings habit and that’s extremely good for your financial health, buying you financial freedom over the long term.
How much should I pay myself first?
There is no one-size-fits-all solution as this will depend on your income and your monthly outgoings. If your disposable income is low, start with whatever you can afford. US$100 is better than nothing and creates that all-important savings habit. As your income increases or you get a better handle on your budgeting you can increase the amount you save each month. Many financial advisers recommend saving 20% of your income so that might be a good target to work towards. Once you get going, I advise seeking the advice of a professional to ascertain some concrete savings targets based on your financial objectives, in particular retirement.
I have debts – should I still save?
High interest debt has to be addressed before you ????? anything else (a mortgage or other low-interest loans is a different matter). Prioritise paying off credit card debt and other forms of consumer debt and be ruthlessly efficient with how you go about it. Target the debt with the highest interest and look into consoliding debts and making the most of zero balance transfer offers if you can. And curb your spending – if you can’t afford to pay cash, shelve the purchase.
I can’t afford to save
I hear this a lot but often find that when people delve deep into their spending habits and start budgeting properly they find areas where they can cut their expenditure in order to save. One good tactic is to employ the 30 day rule for all non-essential spending to prevent impulse buying. If you wait 30 days between first having the urge to buy something and actually making the purchase, more often than not, after 30 days have passed the item you so desperately wanted to buy turns out not to be the must-have you thought it was.
Another solution to this problem is to increase income with a side hustle – you’ll find plenty of ideas here.
What should I do with my savings?
First up you’ll need some liquid cash for emergencies. We’ve all been there. The car breaks down, you can’t afford the repairs so you stick it on the credit card and end up paying extortionate interest on the balance. Cue: financial stress, and extra costs.
If you adopt the pay yourself first method, after a few months you’ll have a financial buffer which you can dip into to cover emergencies such as car. No financial stress and no interest to pay so that’s a win-win.
Sometimes life throws bigger emergencies at us – redundancy and long-term illness being two of the most devastating. That’s why I recommend that you prepare for the worst by accumulating an emergency fund big enough to fund six months’ worth of essential expenditure. Keep this in a dedicated savings account so that you can access it easily and don’t be tempted to dip into it for anything that isn’t an emergency.
Once saving has become second nature and you’re starting to amass a decent bank of cash, it’s time to give your financial planning some serious attention.
Even so-called high interest bank accounts offer a paltry return. There is a huge selection of alternative products out there which are much more efficient savings vehicles, including many aimed specifically at expats in Asia. Before making any big decisions I’d recommend doing some in-depth research and taking advice to find the products that are best-suited to you.
If you are an expat in Asia and you are ready to start building capital by moving your savings into higher interest-earning investment products why not book in for a free financial assessment with me? Together we can make some concrete financial goals and set you on the path to a secure financial future. It’s easy to set up an appointment, just drop me an email at Jregan@infinitysolutions.com>.
Senior Financial Consultant
When I provide a financial consultation, my approach is to treat my client like a business entity I am in collaboration with to achieve their goals and objectives. Through a combined client/consultant effort I seek to improve their strategies, stressing that actions without positive results are costly and a setback to their financial futures. My priority is always a successful end result.
