You do not need to budget to save money

The traditional way of saving money is through budgeting. Every month, you list down your expenses and make a budget for it. Its like how you budget for a company's event if you've ever organised one before. Your company gives you $1000 and you can only spend within this amount. So you start by listing down $100 for food, $200 for gifts, $200 for event venue etc. It works well for company events but however, it doesn't seem to work well for our personal lives. Why does it not work?

Let's say you get a $3000 salary every month. You tell yourself that you need to save 10% (which is $300) and spend the rest. So effectively, you have $2700 to spend. But somehow, at the end of the month, you realise that the $3000 is gone. What happened to the $300 which you wanted to save? It happens all the time and you may have gave up saving. But don't give up just yet. There's a solution to it.


The solution - Pay yourself first

You've probably heard the term pay yourself first before. But what does it really mean and how does it help you to save? Pay yourself first means putting aside a percentage of your salary for savings even before you start spending. It works in a way that you seem to have received a lower salary.

Think about it. When you had a $2000 salary, you were living fine with that $2000. When your salary increased to $3000, you should be able to save that extra $1000 if you maintained the same lifestyle. But, more often than not, our lifestyle spending goes up as fast as our salary increases. Now, we don't have to save $1000 completely of the increase in pay. We can just save lets say $300. So if you pay yourself first $300 before you start spending, it'll be like getting a $2700 salary. Still not too bad considering its $700 more than your previous salary of $2000.


How to pay yourself first without much hassle?


Paying yourself first is easy. With technology advancement, we can make the process completely automatic and without hassle. The process is simple. Open another bank account and set up an automatic transfer to be deducted at a specific date every month. If you have an internet banking account, you can set it up right away within a few minutes. For POSB and DBS account holders, you just have to go to fund transfer and then go to set up standing instruction to set up an automatic fund transfer. You can transfer to an account at the same bank or another account in another bank. That is what i've been doing for the past few years and it really works.


The challenge

If you have a problem of saving money, try out the pay yourself first method. If you can save $200 per month, in one year you would have saved $2400. It doesn't seem like a lot of money because in 10 years time, it's only $24,000. But if you had invested this amount over the 10 years at 8% return, the amount would have been $10,000 more at $34,767.

Saving money is key before you even think of investing. Many people try to find the short cut to make money through investing without the need of saving money. This is a far cry from the reality. Instead of wasting your time to look for short cuts, start saving now. It is important to increase your income by trying to earn more money but it'll all be futile if you do not practice the basic of saving money first. Take the challenge this week to set up an automatic fund transfer. Decide how much you want to save and make it happen. You'll see your money grow soon.

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