Only an aggressive forward-thinker who has experienced the true benefits of a back-up plan, would be asking, “How to continue saving when times are tough?”.
You will be pleased to know that you are at a massive advantage with this way of thinking. You are part of a select group, since statistics continue to identify that a very small percentage of the population even considers a savings plan.
In this article we hope to provide you with a valuable toolkit to accelerate achieving your financial goals.
Over the past year, you have certainly seen the benefits of what it truly means to have a nest-egg to fall back on. With things far from normalised, you may feel some urgency to have your funds quickly restored.
So let’s dive in:
The difference between the genuinely wealthy and those who struggle is at the very base of a fundamental mindset around spending. If you listen to enough people who have worked the proverbial “rags to riches” scenario, they refer to money spent in terms of value-exchange. Money to them is not a thing of value, but a representation of the value they can obtain from it.
They also speak of income in terms of value that they have been able to deliver. This may seem obvious, but at its core is an understanding that has far-reaching consequences. Firstly, it immediately raises the standard of the conversation and mindset.
One is no longer attempting to “obtain the money to pay the bills”- where securing, and thus, chasing, money becomes the focus.
Instead, their mental approach is: “These are the goals I wish to attain in this time period and these are the resources I will leverage to get there” – where the goal becomes the primary objective and creative resourcefulness is activated.
Leverage is a very important phrase here. It shifts the focus to existing resources that can be maximised as the first solution.
Years of incorrect money-awareness and -focus may be quite hard-wired. The easiest way to change this is to consider an active practice of repeating the words “resources”, “value” , “leverage” and “exchange” whenever one speaks of money.
Secondly, most resources, including money, are part of a circular economy. The balance that appears in your account has been in circulation – spent and re-spent – quite some time before it lands in your account, and well after it has left it. It is not actually spent, it is circulated.
For one, moving from a linear (money in/money out) to a circular mentality, will again raise your standards. Deep thinking on what your expense truly supports will open your eyes to ethical issues and the consequences of your choices. Spending and saving becomes a less adhoc endeavour.
Another, is the visualisation of yourself as a cog within moving circular structures. Ideally your cog should move money away slowly, while finding ways to make the cogs that move leverage-able resources towards you rotate faster. This is where the term “value-exchange-rate” can really come to the fore. You will want to keep as many resources with you for as long as possible, to a point where they accumulate and are leveraged at the most beneficial and appropriate time.
This will look different for different people, depending on their situations. For the purposes of simplicity, however, we are going to look at daily living expenses.
However, now that the focus has been placed on resources, rather than money alone, let us look at this subject with a fresh eye.
First, in drawing up a budget, write down your expenses in terms of goals.
What would have normally been listed as monthly vehicle payments, insurance and petrol costs, are now, for instance, listed as “Transport to work”.
Now you could write up a list of different alternatives such as shared transport or a cheaper car.
One could be taking public transport or an Uber daily. This could be a substantial cost saving, especially if, on selling your vehicle, you could place those funds into a long-term investment.
Another example could be changing your weekly shopping drive to having your groceries delivered, which could mean a more thought-out expense – especially if you buy compulsively.
These are merely examples to highlight the difference a goal-orientated, resource-focused approach can make on the final outcome.
In a society that relies primarily on electronic payment solutions, the thought of drawing cash and separating it into bottles or envelopes might feel old-school. It has, however, been found to be one of the most effective budgeting techniques.
Even large businesses run a petty-cash, why shouldn’t you?
The most basic budgeting program is aptly referred to as the 80/20 budget.
This can fit in neatly with an envelope system. If you prefer an electronic management system, having two accounts can work just as well.
The premise is that 20% is kept aside for savings and the other 80% is for everything else.
In the book, All Your Worth: The Ultimate Lifetime Money Plan, Senator Elizabeth Warren popularised a 50/30/20 budget plan.
Here the 80/20 rule is broken down even further, with 50% allocated to your needs, 30% to your wants and 20% towards your savings.
This translates to a more pleasant financial management experience. It removes all guilt from splurges and offers regular dopamine hits as your personal reward for having a well-planned strategy.
Zero-based budgeting is a common practice in business. Every Rand is budgeted for, down to zero. By aligning your side-hustle budget to the 50/30/20 rule, as an example, your business can quickly accumulate money to reinvest or to cover bills in slower months. Having a consistent savings deduction, the business will be less likely to over-extend itself. Because it is percentage-based, as profits increase, so will the amount put aside.
While the above is far from all-inclusive, actioning on any of these techniques will quickly deliver results.
Review your budgets, investments and wills thoroughly