For any person entering the investment arena, the hardest thing is getting started. Saving that first amount to get your foot in the door. Whether you are interested in share or property investment you have to have your budget in order first. The number one thing I hear from client’s is that they just don’t have any spare money after paying all the bills, while in some cases this may be true, in most you can find savings somewhere. However, to do that, saving money has to be more of a priority to you then what you are wanting to so badly spend that money on.
Profolio’s 5 tips to help you start saving now will put you on the right track of saving money to reach that next big goal.
1. Do a budget.
Now I hear you groaning with pain already, ‘a budget, really? They are only the most boring thing in the world, I’d rather be broke.’ But bear with me, how would a business survive if they had no idea of what they were spending or getting in? They wouldn’t. How do the rich people you know get that way If they don’t follow the simple formula of more money in, less money out? They don’t. If you want more, you need to do what ordinary people won’t. Your first task is to sit down, look at your bank statement and write down what you’ve spent your money on in the last month. Once you’ve got the totals break them up in to 3 categories, expenses (bills, rent, phone etc.), spending (frivolous spending, food, nights out, etc), and savings. Put these amounts in to percentages of your total wage. Now if you are on track this should be;
This is what I call my 50/30/20 rule. You should live by this formula, if your budget does not fall in line to this formula have a look at where you are over spending, are you wasting too much on the good life, are you living above your means in the property you are in and the bills are killing you? Whatever the problem, this should help you identify it.
2. Pay yourself first
It seems to take people a while to get their head around this point, quoted by one of the best Robert Kiyosaki, in Rich Dad, Poor Dad (one of my personal favourite finance novels by the way). This is what you need to live by. As soon as you get paid transfer 20% of that money into a savings account. If you just plain suck at saving, look at ways to protect yourself against, you guessed it, you! Set up a savings account with a different bank, or speak to us about our investor accounts, this just makes it that little bit harder for you to transfer those hard earned, potentially life changing savings out on a Saturday night ,or for that new outfit. I don’t care what bills you have or who is knocking at your door, this 20% has to be transferred, you should live off 2 minute noodles for the week before dipping in to this gold mine. A little pain now can mean long-term gain later.
3. Earn More
There is 2 ways you can have more money, spend less, or earn more. If you have done your budget and you can’t see any areas you can cut, maybe you need to consider what you are doing with your life. Does your job allow you the freedom and lifestyle you want? If not, look at ways you can change that, such as up skilling, a potential career change, or just working extra hours.
4. Go on a spending hiatus.
So you are happy with your budget, you are spending in line with my 50/30/20 rule, you pay yourself first, and you already earn good money, and then what.
Put yourself on a spending ‘diet’ for a month. Challenge yourself to not spend money on any frivolous spending for one whole month! Set it as a challenge, tell your friends and family what you are doing to make you accountable and prove to yourself you can do this. One month of this and you could have those extra savings you are after to get started on that investment or pay for that holiday. Without looking like a total tight ass. Its a game, right?
5. Motivate yourself!
If all else fails and you’ve gone through all these steps and still nothing. Maybe we need to consider more than your spending habits. What is your relationship with money? Not to sound too cheesy and Tony Robbins like, but you need to envision yourself where you want to be. If you say you want to be rich and save lots of money, that’s one thing. But do you really, honestly see yourself in that state? Remember, it is just a dream until you set a goal, and just a goal until you make a plan. If you don’t, work on your mindset first, otherwise you will always be setting yourself up for failure. No one is going to do this for you, you need to want to do it for yourself, because you see no short term gain, only short term pain. But let me tell you the long term gain is oh so worth it.
-Sarah Rogers, Principal Financial AdviserShare