If you were to ask anyone what’s the best way to save money, it is quite inevitable that the conversation will somehow lead to the word “budget”.
What does budgeting really mean anyway? In my definition, it is to place certain boundaries around different portions of your paycheck to know where the money is all going to. And if you cross those boundaries, it means that you haven’t been disciplined enough to have done what should be best for you.
Imagine yourself going on a diet. A typical diet plan would go like this: You try to restrict yourself from eating all kinds of food – junk food, ice cream and anything fried. You are sure that you’re going to be 100% disciplined and you’re gonna go carb-free or vegan until you lose those extra pounds.
How sure are you that you would stick to this diet for the next 1 month – nay, 1 week?
Why are you making life difficult for yourself?
It is well known that humans love freedom. By setting a diet plan or a budget, it creates these restrictions to our everyday choices. The more we try to enforce it, the more we want to stray away. Anyone who has been in a relationship with a controlling partner would understand.
Luckily, the health of your wealth is a little different from diet plans. You can save money even without setting a budget. And the process can made automatic. You wouldn’t even miss it once it’s out of sight.
It is the concept of “Pay Yourself First”.
Okay, you’ve probably heard this before. This isn’t new.
But this is important. More important than setting a budget. Because it is more effective. And more powerful. Because unlike setting a budget and restricting yourself, you get to decide how much you save every month, and it works. Every. Single. Time.
ONLY if the process is made automatic, and you don’t get easy access to the money.
Think about it. If there wasn’t a mandatory plan for you to save 20% of your income every month, would having access to that amount of money help you any more with living your life to your fullest?
Okay, what if it wasn’t mandatory, and you wanted to learn how to save by yourself. Here’s what you do. Every month, decide how much you want to save. It could be 10% of your take home pay, or just 5% if you are just starting out. And once you get your paycheck, don’t use the money for anything first. One way to do this easily is to set the transfers to be on the same day when you get your paycheck.
For instance, if your take home pay is $20,000. 5% would be $1000. Every month, set your saving accounts to automatically transfer $85 to another account. It’s not too difficult to save $85 every month, is it? If it is, drop me a comment and I’ll do a free breakdown of your expenses for you.
You might be thinking now that $1000 is measly. It’s a horribly minute sum to even do any investment. You are very wrong. If you were to put in $1000 every year into a low-cost index fund which generates annualized returns of 7%, in 30 years, your portfolio is gonna grow to a sizable sum of $94,460.79. And in 50 years, $406,258.90. A little longer and you’ll become half a millionaire. How’s that for being measly? All you need is time, and some no-brainer tips for investing.
So remember, skip budgeting. Because it’s silly. Make automatic monthly transfers to a bank account that you normally do not access so you can’t use the money if you need it immediately. And if you can’t see it, you wouldn’t even miss it.
And once you master this, try increasing the amount of the monthly transfers. You’ll notice that you can still live life the way you want to. I promise. 🙂
P.S.: This article is meant for people who are facing problems saving in the initial stage. The first step is always the hardest, and paying yourself first can make that step much easier. Of course, budgeting would make more sense for someone who has already developed the habit of saving and already in full control of their expenses.
Thanks for reading!
Miss Niao xoxo