Wednesday, 28 January 2015

How to start saving?

Many friends have asked me how I started saving and this post is dedicated to them. The fact is that there are so many methods of saving and no one method suits all. Savings plan has to be customized to an individual's needs and commitments. We all know of people who have difficulties saving. They have many commitments (bills, allowances, loans, transport, food, etc.) So this post will start from the very basic and slowly move to the more advanced.

Level 1: Saving $1/day. For those who “really cannot” save anything
Come on, surely you can save $1 a day? At the end of the year or subsequent years, you would have $365/ $730/ $1095 /$1460… once you are comfortable…

Level 2: Saving $10/week.
Granted this is not a large sum (maybe just 2 less Starbucks a week?) but after a year or two, you would have $520/ $1040/ $1560… and once you are comfortable…

Level 3: Saving $100/month.
This could be tougher than it looks for those who just started out. But if you start from level 1 till now, this amount should not really bother you. You would have $1200/ $2400… after a year or two.

Level 3a: 52 weeks money challenge
Week
Saves
Total
Week
Saves
Total
1
$1.00
$1.00
27
$27.00
$378.00
2
$2.00
$3.00
28
$28.00
$406.00
3
$3.00
$6.00
29
$29.00
$435.00
4
$4.00
$10.00
30
$30.00
$465.00
5
$5.00
$15.00
31
$31.00
$496.00
6
$6.00
$21.00
32
$32.00
$528.00
7
$7.00
$28.00
33
$33.00
$561.00
8
$8.00
$36.00
34
$34.00
$595.00
9
$9.00
$45.00
35
$35.00
$630.00
10
$10.00
$55.00
36
$36.00
$666.00
11
$11.00
$66.00
37
$37.00
$703.00
12
$12.00
$78.00
38
$38.00
$741.00
13
$13.00
$91.00
39
$39.00
$780.00
14
$14.00
$105.00
40
$40.00
$820.00
15
$15.00
$120.00
41
$41.00
$861.00
16
$16.00
$136.00
42
$42.00
$903.00
17
$17.00
$153.00
43
$43.00
$946.00
18
$18.00
$171.00
44
$44.00
$990.00
19
$19.00
$190.00
45
$45.00
$1,035.00
20
$20.00
$210.00
46
$46.00
$1,081.00
21
$21.00
$231.00
47
$47.00
$1,128.00
22
$22.00
$253.00
48
$48.00
$1,176.00
23
$23.00
$276.00
49
$49.00
$1,225.00
24
$24.00
$300.00
50
$50.00
$1,275.00
25
$25.00
$325.00
51
$51.00
$1,326.00
26
$26.00
$351.00
52
$52.00
$1,378.00
I got this from the internet. This is saved according to weeks. So in week 25, you save $25 and in week 52, you save $52. This may be very tough as week 49-52 are in December and you need to buy presents… hence the solution is below.

Level 3b: Reverse 52 weeks money challenge
Week
Saves
Total
Week
Saves
Total
1
$52.00
$52.00
27
$26.00
$1,053.00
2
$51.00
$103.00
28
$25.00
$1,078.00
3
$50.00
$153.00
29
$24.00
$1,102.00
4
$49.00
$202.00
30
$23.00
$1,125.00
5
$48.00
$250.00
31
$22.00
$1,147.00
6
$47.00
$297.00
32
$21.00
$1,168.00
7
$46.00
$343.00
33
$20.00
$1,188.00
8
$45.00
$388.00
34
$19.00
$1,207.00
9
$44.00
$432.00
35
$18.00
$1,225.00
10
$43.00
$475.00
36
$17.00
$1,242.00
11
$42.00
$517.00
37
$16.00
$1,258.00
12
$41.00
$558.00
38
$15.00
$1,273.00
13
$40.00
$598.00
39
$14.00
$1,287.00
14
$39.00
$637.00
40
$13.00
$1,300.00
15
$38.00
$675.00
41
$12.00
$1,312.00
16
$37.00
$712.00
42
$11.00
$1,323.00
17
$36.00
$748.00
43
$10.00
$1,333.00
18
$35.00
$783.00
44
$9.00
$1,342.00
19
$34.00
$817.00
45
$8.00
$1,350.00
20
$33.00
$850.00
46
$7.00
$1,357.00
21
$32.00
$882.00
47
$6.00
$1,363.00
22
$31.00
$913.00
48
$5.00
$1,368.00
23
$30.00
$943.00
49
$4.00
$1,372.00
24
$29.00
$972.00
50
$3.00
$1,375.00
25
$28.00
$1,000.00
51
$2.00
$1,377.00
26
$27.00
$1,027.00
52
$1.00
$1,378.00
I personally think that this is better than the original as after the four few weeks, you would have nearly completed 15% of the challenge. The interest received could compound much faster than the traditional 52 weeks challenge. Also you are able to spend on present for your loved ones.

Level 4: Saving 10%/month or fixed amount (whichever is higher)
So now we are looking at the pay you would receive while under the employment. If you are freelance and have fluctuating income per month, this plan is not for you! This level is for those who are comfortable saving $100/month and feels that’s not much of a challenge. So if you decide on an amount (Eg: $200/month), if you earn $3000/month, then you will save $300. But when your pay comes and there is only $1950, you save the fixed amount of $200. That way, you would have a definite amount at the end of the year and a little more if you keep saving more than the fixed amount.

I personally use level 4 and is now at 40-45%/month. Interesting challenge is if you are able to save 100% of your income, you are a FREE! Some of you may be shocked… “SAVE 100%? Means I don’t need to eat or spend for the month?”

It doesn’t mean that. If you are able to invest your money in income producing assets like REITS, dividend stocks, rental income, etc, you would receive passive income. If your passive income is more than your expenses, then you can retire and just live off your passive income. But, if you do work and receives a pay, you can choose to save all 100% or spend it on your family. That’s why I mentioned that you can save to 100%.

Saving is only the first step to financial freedom. Putting your money in the bank is not going to grow your money. Most banks give <1% interest and you’ll be lucky to find 1%. Using the Rule of 72, it takes about 72 years to double your money earning 1%pa. It takes about 14 years to double if you earn 5%pa. Hence investing should be on everyone’s priorities. The trick is to save enough to invest.

This is a very long post and hopefully it helps to motivate you to begin saving.
If not now, then when?

Investing Wolf
Disclaimer: This is not a recommendation to buy or sell any mentioned stocks or securities in this blog.