As promised, the next few steps will focus on how to speed up your savings process and reach your savings target faster with some simple ideas. Although the tips and habits will help you to build your living fund faster, they are not meant to be just one-off ideas. If applied over time, they will help you to keep progressing towards new financial targets you have set yourself, even if they have since become other or bigger goals.
The first one of the tips – Keep 50% of any extra money – is an easy one to understand, yet as often is the case when it comes to money, difficult to implement, as it requires you to resist the temptation of instant gratification and instead needs you to focus on the long-term advantages of self-control.
There might be times when you get a financial windfall and receive some extra money. Maybe you got some extra money from your family for Christmas, or you have an extra holiday pay or paycheck from your employer or maybe you’re lucky and you’re getting money back from a tax return. The point is that similar to how you’re likely to be faced with unexpected expenses now and again for emergencies that can hit your budget hard, but for which you now should have built an emergency fund, the opposite of RECEIVING some extra money can also happen (although unfortunately this likely happens less often than having to pay extra, but that’s a different story..)
It’s always tempting to immediately go and spend any extra money we get, whether we were expecting to get that money it or not. We feel we’ve worked hard for it, or that we deserve it for some other reason, because we’ve helped somebody or because we’ve been going through some rough times and can do with some extra cash to spend on ourselves. So more often than not we go and spend that money straight away.
Now, I am not here to tell you that you shouldn’t, as in all honesty I believe you should definitely take some of that money and spend it, maybe put it towards the holiday you’ve got coming up, or take your partner and / or family out for a dinner at a fancy restaurant, get some new clothes or do whatever else you feel like doing when you get some extra money. Yes you deserve it and you should be able to enjoy the reward and some instant gratification. I personally don’t want to be super frugal and stop enjoying the small things in life and sometimes spending that money, especially if it is on an experience you can share with other people, adds a lot of value and enjoyment to life, (which at least in my opinion is not unimportant).
But did you notice how I said “you should definitely take SOME of that money”? Now that you understand the power of small steps and compound interest, I hope it doesn’t come as a surprise that I’d advocate putting away even just half of that money, as it will get you so much more in return in the long run.
So basically, don’t spend ALL of that extra money. Keep 50% (or 60% or 40%.. you decide!) and invest in your future. Keep it so that your hard work doesn’t just give you a short-term reward, but save some and allow yourself to enjoy the results of it for years to come. Invest it, use it to make an extra debt payment or put it in a savings account with a decent interest rate. And see your financial situation improve, your net worth increase and your long-term mission to financial independence getting one step closer.
Again a note of warning here: Whether or not you are expecting any extra money, make sure that you never EVER budget for this, so that when this money comes in, you are truly able to enjoy the benefits of it. It is also safer as at the end of the day you never know for sure you’ll be getting the extra money, nor the exact amount of it. Maybe your great-aunt forgets to give you money this Christmas, maybe your employer needs to cut costs and take out that holiday pay this season, or maybe you are no longer entitled to that tax return.. See that money for what it is: an extra bonus, but not something that you are always entitled to per se.
Now that we have established the benefits of keeping some of that extra money you were hoping to spend straight away but for which you can now see the benefit of not immediately doing so, let’s get to the plan!
Step 28 – Keep 50% of any extra money – in detail
- Review your budget and double-check you aren’t relying on any extra money. If you are: re-budget and pretend that extra money doesn’t exist.
- Decide what you’d do with any extra money and write it down so that if / when it comes in you can just follow your plan.
- Decide how much you’d want to keep. I strongly recommend 50% but maybe you are happy to only spend 40% and keep 60% or maybe the reverse is true. Again write this down so it is a commitment with yourself.
- When the money comes in, stick to your plan and thoroughly enjoy the spending part of it, knowing that you are spending a sensible amount whilst at the same time investing in your future.
You might not often get money back, or it might just be small amounts, but remember that even those extra $10 you put away get you closer to your goal. Rome wasn’t built in one day either and with patience and perseverance you WILL get there. Just keep up with the plan!
Read more about my 100 steps mission to financial independence or simply decide to take control today and join us on our step-by-step quest on how to make your finances work for you, starting with step 1.