Savings, System and Security (Part 2)

It's been a while since my last post, as I had been busy the past weeks.

Today's post shall be about 'System', part 2 of the 3 Ss.

In today's context, when our income are usually transferred to our bank accounts, it is vital that we set aside our savings in a separate bank account.

Why? I'll attribute it to a phenomenom I call the 'Plateau Effect'.

Everyone has a comfortable level of savings in-built in their subconscious mind. (In T. Harv Eker's book, Secrets of the Millionaire Mind, he described it as our individual 'financial blueprint'.)

This means that when we reach our comfort level, we will subconsciously tell ourselves that "Hey, I've been saving hard all these while and now I have enough savings. I can loosen my purse string and can spend a little on that (insert anything of desire ) that I always wanted!"

And what happens is that you'll save lesser (or stop totally) as it suddenly seems like there are lots of things to spend on,

When we are below that comfort zone, the reverse happens. We'll tell ourselves "I can't afford to overspend this month as my bank balance is low. I can buy this next month." We'll spend lesser and save more to reach that comfort zone.

Don't believe it? Don't you find it familiar that when you have $100 in your wallet, it seems to get used up pretty fast. But when you have only $30 in your wallet, it seems to last much longer.

Most of the clients that I've consulted face the above problem. And the easiest solution I offered them? Simple! Save in a separate bank account, ideally without an ATM card. When you can't see that money, you won't think it's there and therefore you won't have the urge to spend it. But it's truly there and saved up for greater purposes in life!

A good system brings about discipline. Good financial discipline is a habit. So is poor financial discipline. Having a good system in place enforces discipline, while ensuring effectiveness.

Very often, when customers tell me that they want to save for their wedding, further studies, desired car, downpayment for their dream home or other goals in life, I always advise them to set aside a budget for it. It can be a certain percentage of his/her income. This also means something else will have to give way to this financial priority.

Without a proper system and planning, one will simply be building sandcastles in the air. It will be naive to think that they can set aside money for a certain objective without taking it from somewhere else.

This is where people who run their own businesses or are self-employed have more freedom. If one who are in this category wants to buy a car, he/she simply have to increase their income. Salaried employees may have to wait for their next pay raise, which can be once a year.

There are many financial products that provide disciplined regular savings, usually on a monthly or yearly basis. If you are serious about savings, these products may help a great deal. Do remember, it it not how high the interest is that determines the effectiveness of the savings plan; it is the discipline and system that is more important.