Saving even as you get richer

Save and grow rich

Saving is very tricky especially if you've started the world of work spending every penny that you earn and living pay cheque to pay cheque. If that's you then you need to read this article:

Saving is all about habits 

Form good habits. This is the key to building wealth. Having good habits for saving are important and it's important to start as early as possible.

A lot of people believe that they will start saving when they "can afford to save". But what does this mean in reality. It means that they start working life of £20,000 and spend £20,000 or more (and accrue debt). After working hard they manage to get a pay rise within a year. They earn £25,000 and spend £25,000 as they are now able to purchase that better holiday, or lease that new car, or buy a new TV following the pay increase. A year goes by and they manage to earn a promotion. With the promotion comes a well deserved £30,000 salary package. Seemingly with this increase in salary comes an increase in bills as they move to a new rented accomodation affording a more expensive but nicer part of town. With increased rents also comes increased council taxes and utilities for a bigger place. The result being that they manage to spend £30,000 a year, the entire new salary.

Without labouring further the problem is that this person isn't used to saving. The habit that they formed from day one was to spend 100% of their pay packet. Just because they earned a pay rise doesn't automatically mean that they are going to be able to save a portion of it. Psychologically it's very tough to tell yourself not to reward yourself with the pay rise and enjoy a better standard of living.

How to save 

The trick is to start saving early, even if you think you can't afford to. As soon as you get that starting salary take 10% of the after tax amount and stick it into savings. You should automate this process by speaking to your bank or going online and getting the bank to set up a standing order the day after your salary is paid into your account such that 10% is automatically transferred to a separate savings account.

If you start doing this you will find it will be easy and automatic to save. As your salary rises you'll be used to saving and given the increased disposable income you'll be able to increase the percentage of salary saved each pay rise.

I can't save

Some people are inclined to give excuses and say that they could never afford to set aside 10% of their earnings day one of work. However, by artificially reducing your disposable income each month your spending habits will be forced into adjusting to a lower amount. Just pretend that your initial pay package was actually lower. Did you actually anticipate exactly what your first salary would be? What if it had been less? Surely you would have coped!

Spending is like air in a balloon, it fills the space provided for it. Provide less space.

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