Many people find it difficult to save substantial amounts of money, for various reasons. The most basic, practical issue could be that you have to spend more than you earn. But there might also be barriers you impose upon yourself without even realising.
As you strive to increase your income, it is important to prepare for the future by integrating the habit of saving into your lifestyle. Here are five “blind spots” that might be stopping you from saving significantly, and how to tackle them.
1. Perception of low income
Assume you make RM5,000 a month but do not think it is enough. Consider those who earn half your salary, or even less than that – they would think you make a lot of money.
The point is that it’s all relative. To counter this blindspot, stop telling yourself that you don’t make enough money, as saying this makes you feel powerless when what you want is to have control over your finances.
2. Spending first, instead of saving
Whenever you anticipate big money coming in, don’t immediately ask what you are able to spend it on. Instead, practise “paying yourself” first.
Set aside money for your freedom fund, that is, the money that will fuel your retirement, or capital that will allow you to grow your wealth towards achieving passive income.
Prioritise what is essential for the long term by allocating a portion of your income towards savings and investments. Only then should you spend the rest.
3. 100% budgeting
Many people budget based on their entire take-home pay. But when there is an unexpected event that requires unplanned expenditure, they are often left high and dry with little to no money for the rest of the month.
To overcome this, allocate a certain amount for contingencies – perhaps 5% of your income. If there are recurring expenses such as insurance premiums and maintenance costs, you should already be factoring these into your budget.
4. Saving to spend
If you find that you continuously deplete your savings for short-term financial goals, you could be missing the big picture.
Remember that the aim is to achieve financial freedom. Goals such as upgrading your house or buying a new car are all well and good, but channelling the money into ventures that would yield dividends or passive income would be a much better idea.
5. Lack of investment knowledge
Most people who lack monetary resources think investing is only for the wealthy. This is a common blind spot.
To make your money work harder, even if it is a small amount, learn about investing. You don’t need to wait until you have RM100,000 in the bank to find out more about stocks or properties, especially in this day and age when information is at your fingertips.
So equip yourself with financial knowledge and investment skills, and you will naturally save more money, accumulate capital, and reach your financial goals much more quickly.
This article first appeared in kclau.com.
KC Lau’s first book Top Money Tips for Malaysians has sold thousands of copies. He launched the Money Automation System, the first online personal finance course specifically designed for Malaysians. He also co-founded many other online financial courses including the Bursa Method, Property Method, Founder Method and REIT Method.