(Photo by misswired)

Since young, I had this bad habit with money: I couldn’t save. I would save money for a while, and once I’d accumulated some savings, I would spend everything on some big ticket items and reset my savings balance to zero.

After I started earning income, I would set a goal to save some money each month. However, by the end of each month, I would have spent almost every single cent I earned and had very little left to save. Even when I managed to save something, some big ticket purchase would come along and ate up all my savings.

It was pretty frustrating. On one hand, I knew I had to save some money; on the other hand, I kept sabotaging myself by impulsive spending. There were also times when I had to use my savings due to emergency or unforeseen spending like medical bills, vehicle repairs, household maintenance…

For many years, I kept oscillating between saving, spending, saving, spending… As such, I never really have any savings until recent years.

Now, I have set aside an emergency fund to last me more than 6 months if I’m retrenched, and I have another basket of money saved up which is growing every year. I mentioned there are 3 levels of financial freedom; the first level - financial stability can be easily reached with a proper saving strategy.

This is my simple surefire way to help you reach financial stability through saving and also prevent you from spending what you’ve saved:

1. Have a personal budget – you need to work out what your monthly financial liabilities and expenses are. Based on your income and fixed expenses, you will be able to work out the amount of unused income you can save each month.

   If you don’t have a monthly budget, start one now. Years ago, I started tracking my personal budget using spreadsheets. I have recently started to use MS Money to track my expenses, savings and investments for more comprehensive tracking and reporting.

   For beginners, you can use spreadsheets for basic tracking and calculations. It’s good enough for most cases and you can move into other tools later if you choose to.

2. Setup 3 Bank Accounts – No, I’m not crazy. Why 3 accounts? They serve different purposes as follows:
   • Spending account – this is the account where your paycheck goes. This is also the account which you use for your daily expenses. You should have an ATM card for convenience and which allows you to draw money as and when you need it.

     This can be a normal checking account or a savings account.

   • Rainy-days account – this is the account where you park money for emergency use. The money here is used for unforeseen big time expenses like medical bills, repair, or major household maintenance. It is also used to buffer you through rough patches like job lost.

     You should NOT have easy access to money in this account. If you have an ATM card for this account, leave it at home. You don’t want to spend money from this account unless you really need to i.e. emergency.

   • Savings account – this is the real savings account where all your monthly savings will go. You should NOT have to withdraw the money here. No ATM card allowed; if you have one, cut it up!

     I am currently using a cash fund as my savings account. It provides (slightly) higher interests than normal banks’ savings accounts, but has the same low risk and liquidity. I only use the money here for investments.

3. Save Up An Emergency Fund – Once you have the accounts setup, the next step is to start filling up your rainy-days account.

   Based on your budget, you will know the monthly unused income that can be put aside. You should target to have 10% to 40% of your monthly income for savings. If you cannot even save 10% of your income, you need to review your expenses. You may be spending too much and over committing yourself financially.

   For the first few months, as soon as you receive your pay check, transfer all your money budgeted for savings from the spending account into the rainy-days account. Don’t wait until the end of the month when you have money left to transfer over; chances are you won’t have much left by then.

   Once you have saved enough money to see you through 6 months of unemployment, then you can move on to the next step.

   THE PSYCHOLOGY OF PAYING YOURSELF FIRST.

   For this savings strategy to work, you have to pay yourself first at each payday. By paying yourself first, and transferring the money into another account that is not easily accessible, you minimize the chance to overspend.

   If you leave the money in your spending account, you will see a greater balance than it really is and you’ll have greater likelihood to be relaxed about your spending. ‘Ah…still got money, I can buy this, I can buy that…’

   This is why when I was saving only at the end of the month, I don’t usually save much.

   If you transfer most of your money out for savings first, leaving the rest to spend for the rest of the month, then you will be more stringent about spending when your balance dwindles towards zero.

4. Save Money – Once you have your emergency fund ready, the rest is really easy. You can start filling up your real savings. The same concept of paying yourself first applies, only that instead of transferring into the rainy-day account, transfer your money into the savings account at the start of each paycheck, and watch it grow.

   I also recommend that you automate this transfer through direct banking so that you have no excuse or chance of forgetting to do the transfer.

If you ever need to use the emergency fund from your rainy-days account, remember to top it up as soon as your rainy days are over. Once your funds are refilled, continue with your normal savings.

This method takes the emotional part of savings away by automating it into a process. It is also easy to track as you just have to do one transfer every month, and continue with your normal spending. No need for tedious tracking of every expense in the same bank account.

In a few months to a year, you will enjoy the fruits of financial stability.

Here are some additional money and savings articles for further reference:

• 10 Money Mistakes to Avoid - PickTheBrain
• 10 Ways to Simplify Your Budget - ZenHabits
• Simple Finances: How and Why to Build Up a Cushion in the Bank - ZenHabits
• Eight Small Changes That Lead To Riches - AlexShalman.com

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