Business, Personal + Finance

Saturday, November 22, 2014

The power of 3% savings



Everything begins at the realization that one needs to pour in some work in order to become financially independent; and when you assess yourself and realize your financial capability and capacity to pursue your goal or journey towards financial independence, that is where the hard work begins.

There are so many choices out there that we get too excited and rush in choosing the so-called-investment that gets us to our goals of “being rich” faster.

Many fall into a trap of getting rich quickly by putting their money on investment vehicles that are unproven, untested, unknown or driven by reckless drivers. The lure of getting rich can swiftly blind people from making sound financial decisions.

Most of us have only one income stream and therefore one stream for savings, often it is for our daily consumption and survival. You can’t invest money you can’t afford to lose which means you have to set aside some funds for that.

You need to plan, and create basic Personal financial strategy. This usually takes 3 steps. First you must understand (learn), then you make a plan (goals and how to execute the plan) and then you work your plan (begin by doing). But before anything else you need money, in order to have that, you need to SAVE before getting into any investment, buying insurance/healthcare plan or the like activities.

When you google “how to save money”, you will probably get all the answers you need but for most of us, the task of: making meals instead of buying, switching to CFL bulbs, cutting back on convenience foods, and changing of spending habits can be a tedious process which usually stops many of us from even trying with so many things to think about.

Be good in the little things first

I have always used this concept whenever I’m consciously saving up for a goal or just to increase my savings: “Small amounts matter.”

Big things start from small beginnings. If you are not good in the little things, then you will have difficulty in doing big things. In financial terms: If you can’t save Php10.00 per day for 365 days, what more if you try to save anything higher than that?

Now, that’s a bit too fast to do for novice savers. Although it’s an interesting challenge as well to set aside just Ten pesos per day!

Most people find it hard to save money because they let their spending 'dig in' first. They blindly hope that there will be something left at the end of the month. The most effective way to save is to put aside small percentage or amount before you spend anything at all.

The power of 3% savings

You probably heard in various seminars that we must save 80% and spend only 20% of our income, or something like that. Well, that’s easier said than done! So what I found is that it is much easier if we reduce our savings percentage in small amounts while attaching a goal to it. When you attach a goal to your savings plan, you are more likely to continue doing it rather than going for the huge 80% savings deduction from your income.

So let’s talk about goals, what do you want in life? You want a house & lot or condo, a car, travel somewhere, so on and so forth. Trying to fit that into your 80% allocated savings is a pain, so what we can do is the reverse, we’ll start off by assigning those goals into a 3% goal-oriented savings from your salary.
•    3% Travel Funds (hooray for piso fares but you still need pocket money though)
•    3% House and Lot Fund (cash for downpayment)
•    3% Car fund (you may not save for the full price but at least you’ll have the cash for downpayment)
•    3% education fund (higher education, professional trainings, overseas education)
•    3% Fun Fund (food trip, meet-ups with friends, movies)
•    3% Love Fund (matters of the heart still need some money)
•    3% or 6% Emergency Fund (three to six months living expenses saved)
•    3% Investments (you can invest in the following: stocks – 5K minimum, Mutual Funds – 5K minimum, UITF – 10K minimum, etc..)
•    3% Protection (Life Insurance, Health, Car, Calamity.. or hybrid plans)
•    3% Entrepreneurial (for that dream business of yours – franchise, friends’ business, others)

Now that’s still about a minimum of 30% savings allocation/deduction from your salary, you can go up if you want to! I’m not saying this is totally super effective but for me it works! It paints a picture to your savings which makes you more vigilant in pursuing it further.

Like any endeavor, this will take some time to accumulate but once it does you will be all smiles for sure! 

Try it yourself!
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