Top 5 Lessons on Saving Money
This article outlines five key lessons learned on an eight-year journey of saving money, offering perspectives often overlooked in other financial advice. These lessons aim to provide practical guidance for those looking to improve their savings habits.
The Defining Moment: Saying "No" to the Internet
The journey towards serious saving began in 2016 while working as a teacher in China. The decision to refuse internet registration, despite its relatively low cost, marked a turning point. This seemingly small act ignited a dedication to saving.
Lesson 1: Saving Doesn't Mean Living Like You're Broke
Initially, the focus was on extreme saving, aiming to save 80% of income for early retirement. However, this approach raised questions about the quality of life both now and in retirement. The key realization was that saving should be about following a reliable plan, not living in constant scarcity. It is a balance between future goals and the present quality of life.
-
Sacrificing a little now is important, but not at the cost of all enjoyment.
-
It's better to save a comfortable amount and enjoy life now than to save aggressively and feel deprived.
The Impact of Family
This perspective shifted further with marriage and parenthood. Prioritizing extreme saving can negatively impact family life and limit opportunities for children. Therefore, it's crucial to find a balance that allows for both financial security and a fulfilling family life.
Lesson 2: Contentment vs. Penny-Pinching Stress
Working as a financial coach revealed the stress associated with excessive penny-pinching. Budgeting down to the last cent can be incredibly taxing on mental health and relationships.
-
Penny-pinching and strict budgeting can be draining.
-
Being content with a humble lifestyle is more sustainable and freeing.
Aligning Financial and Lived Identities
The breakthrough came when a client struggled with a costly Christmas trip home. Weighing the trip against saving for her daughter's down payment revealed a disconnect between her financial identity and her desired lifestyle. The importance of aligning income, wealth, and lifestyle is vital for financial well-being.
Lesson 3: Earn More, Save More
While some lifestyle inflation is inevitable, the best way to save money is to increase income. Instead of obsessing over cutting every dollar, focus on earning more while keeping spending relatively stable. As long as income increases outpace spending increases, you'll continue to save more.
-
Increase income to meet your financial goals.
-
Keep your lifestyle relatively stable as your income increases.
Lesson 4: Your Spouse is Key
Financial transparency and shared goals with your spouse are crucial for building wealth. Disagreements on spending habits can derail even the most disciplined savers.
-
Establish shared financial goals and a shared lifestyle.
-
Open communication and transparency are essential.
-
Agree on roles (spending, saving, investing) to streamline finances.
The Importance of Financial Transparency
A lack of financial transparency can lead to significant relationship problems. Open communication, shared financial goals, and aligned spending habits are essential for a successful partnership.
Lesson 5: Automate Your Savings System
Saving becomes easier when it is automated. The goal is to create a system where saving happens without constant thought or effort.
-
Establish a system where savings is automatic.
-
Aim for a point where you're not constantly worrying about where to cut costs.
Creating an Automatic System
Having a separate spending account and savings account can facilitate this automation. By splitting income between these accounts, you can spend freely from the spending account without impacting your savings goals. This simple system makes "paying yourself first" an automatic habit.