Saving money for the here and now can be tricky but luckily, legendary personal finance journalist Mary Holm has a variety of tips for those looking to set something aside.
Mary says she wants to respond to a text where someone said ‘I love Mary but one day can she talk about how to save money now in everyday life rather than about Kiwisaver or retirement please’.
“There’s actually two steps to that and the first one is really important step, and that is to set up a goal for saving," she says.
“This time I’m basing it largely on my book Rich Enough? A laid-back guide for every Kiwi … it was actually about setting a goal to pay down your debt, but exactly the same rules apply for seeking a goal to increase your saving and in fact they’re kind of the same thing.”
However, she also says getting rid of debt is increasing your wealth in the same way that saving is, although it is much more effective and should be a first priority.
"If any listener’s thinking ‘well, I'd like to increase my saving’ and they've got credit card debt, etc it's a really good idea to pay that down first. That is improving your wealth in the same way.”
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SMART
Mary says the main features of a good goal are summarised in the word SMART - “so it stands for Specific, Measurable, Achievable, wRitten - without the W ... and Time-bound".
Specific
“Specific goals, that's quite obvious. Rather than just saying ‘I want to save more money, I think I should save more’ it's a good idea to say ‘I want to save $5000, $10,000 to get a new car … or several thousand dollars to go on holiday next year’ or whatever. Really a good idea to save for those things first rather than putting them on a credit card because you can end up paying twice.
Measurable
“Like ‘I’d like to save $50 a week’ or something like that, you want to set yourself a particular amount to save and, you know, for some people $50 a week might seem way too much and for some people might seem way too little. It's incredible, the variation.”
Achievable
“A is for achievable and that is kind of obvious that your goal’s got to be achievable but I mean, some people do get a bit carried away and see themselves too high a goal.
“You might start at $40 a week for a month and then stick it in your diary or something to make it $50 the following month and, get it on up that way.
“It's a bit like diets where people quite often say ‘I'm not going to eat any sugar products on anything with fat in it or something like that, and then a few days later they break the dies and then give up all together.”
wRitten:
“Common sense tells you that if you write it down and put the goal – I would say on the fridge or something with a magnet, some people say a sticker on the mirror in the bathroom when you’re cleaning your teeth, perhaps on the dashboard of your car – somewhere you’re going to look at the note and keep reminding yourself about it.
“It’s also good to tell other people the goal, so you tell your friends ‘I'm going to save, you know, $2000 for a trip next winter’ and try and even get them a little bit interested in asking how it's going. That makes it a bit harder to not achieve it if you’ve told other people about it.”
Timebound
“So you want to do it, obviously, by a certain time, so you say you're going to save for a car three years or whatever.
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Other tips
Auto saving
One really good idea is to set up an automatic transfer of money ... if you’re getting a regular income … then maybe the day after that [comes in], you set up an automatic transfer out of your everyday account into a separate savings account. It’d be really nice if it paid a bit of interest, so while these days they don't seem to pay much it's still giving it out of out of your line of sight, really.
The lump bump
So then if you get any extra money – maybe an inheritance, or if you get a pay rise that’s backdated to several months ago … that can mean that you get a really nice big lump sum of money … if you get that sort of extra money I always say spend a little bit of it on fun but if you can put, you know, some of that into your goal that really boosts things along nicely.
You know, we're all human and we respond to nice things happening for us, positive things, carrots rather than sticks tend to work.
Milestone rewards
“You might, you know, a quarter of the way through and halfway through when your goal’s $2000 and maybe [you’ve saved] $500. you shout yourself. Not something too expensive, but some little treat, you know, lunch on the weekend or something like that, that you wouldn't normally do to say, yeah, I've, I've got this far with it that that's really a nice way to encourage you to keep going.”
Don’t double down
“If you slip up one week, or one month whenever you're doing your your regular saving … don’t try and double up the following week. Unusual circumstances maybe you could, but most people can’t. They say ‘oh gosh I didn’t do my $100 this week I’ll do $200 next week’ and that then rapidly gets too hard and then people just give up on the whole thing.
“I would suggest to just say, 'okay, I didn't do it last week but this week I'm going back to my usual, and just resume.”
Message from the past
Mary says there’s a free website called futureme.org which allows you to send yourself messages in the future.
"You can send yourself an email that comes back into your inbox, anytime - it's got to be at least a month from now, it could be a year from now or whatever - and you send yourself an email that lands back in your inbox.
“You can do that with goals, where you say ‘I'll set it for three months from now and I'll get an email that comes in and says hey, have you saved $300 by now’, whatever the goal was, just to give yourself a little reminder. You could see it up to several of those.
Rainy-day fund
Mary says an emergency fund is a slightly different proposition.
"Although that might be what the goal is, to save the money. Some people say, as much money as you need for three months, you know, three months income … that's quite high, I think.
"We have talked about this before, but ... you might have access to money in other ways like if you've got a mortgage, and you've been paying it down quickly you can quite often ... add to the mortgage in an emergency, etc.
“But, I mean, three months is certainly a good amount to have.”
