If the Cash Flows Your Savings Will Grow
In my first post for Talent 2 Talent 2a Cash Management we looked at some strategies for increasing income and cutting expenses at a higher level. This naturally flowed into a more targeted overview of the cash flow statement in part 2 Talent 2b Your Cash Flow is King. In this the final installment of our 2nd talent we will look at saving planning and strategies to provide the community with a holistic picture of this talent and move forward in our series.
Setting Goals is Good for the Soul
I have specifically developed an additional resource for this post which is called the Saving Planning Worksheet. This Worksheet is designed to assist you in calculating the current amount of money you will need to put aside to achieve future saving goals. With the assistance of this form and a basic financial calculator you can very quickly see If you are in a savings shortfall or surplus. In the case of a surplus you may be over allocating resources towards meeting your goals and losing potential to invest or consume, so you may want to scrutinize this as closely as possible. If you have a deficit in savings to meet a specific goal, then corrections must be made to your strategy. You could reduce your expected future consumption and future standard of living which is the basis for your saving goal. Alternatively, in case of a deficit you could find additional resources to commit to savings objectives by either increasing your income or reducing your current standard of living to have a higher standard in the future. Let’s say that your objective is to save $12,500 by the end of 2 year 8 months to finance your 40th year anniversary vacation. If 2% compound interest monthly can be earned net of inflation and taxes, and if money is saved at the end of every month, then we can determine that the monthly savings required to achieve this objective is $281.76. Let us now turn to some strategies that will assist in achieving your savings objectives.
You Must Have a Strategy to Win a War
There are several effective strategies that can help you establish good behavior related to savings. I will look at the four that have worked best for me over the years and share some best practices with the community related to these strategies.
• Sacrificing your current consumption for your long terms savings goals such as vacations, education, retirement and large purchases is a difficult undertaking. If you end up exceeding your personal and household savings goals you need to reward yourself for this accomplishment. This will provide an incentive to save extra cash as you know that you can reward yourself with something that you want if you exceed your goal. Make sure to not to be so focused on saving that you forget to reinforce the good behavior you have undertaken with a treat every once and a while.
• In western societies there is a focus on consumer driven consumption and this consumptive and instant gratification lifestyle has a severe negative effect on our savings rate. If you can avoid using credit you will save on interest charges, and this difference can be saved for your longer-term consumption. Whenever you buy on credit you are leveraging your future standard of living for your current consumption. This will eventually catch up to you and impact your capacity to save for your future goals.
• As a rule of thumb, you should consider automatic saving deductions as this will greatly minimize your capacity to conveniently forget or avoid contributing. Generally, we recommend 10% of your take home pay as a base for savings, and by automatically committing this amount every pay into a savings or a non-registered account you are starting towards your goal of financial fitness. There is the added advantage of dollar cost averaging which will allow you to buy into a savings vehicle or low risk liquid investment at various price levels reducing your market risk. You will be surprised how quickly your savings can grow utilizing the dollar cost averaging method, and this does not require you to time market entry which can be tricky for even a seasoned investor.
• Lastly, I can say from personal experience that the largest obstacle that tends to obstruct the achievement of saving objectives is unrealistic goal setting. Having a 30% net income savings goal may expose you to unnecessary financial hardship and cause you to fail to achieve your objectives which may also impact your motivation to continue goal setting. A best practice here is to start small with a goal that is relatively easy to achieve, then this can be adjusted upwards as you accumulate a personal sense of accomplishment in your previous savings successes.
To finish off we can see that the last 3 posts have demonstrated how cashflow management and analysis can assist in accomplishing your savings goals. I personally noticed that when I am organized with goals and have an active strategy I am far more successful in achieving my objectives. So far in the series we have shown that Talent 1 Your Mental State Does Matter is the foundation of all financial strategy and Talent 2 Cash Management and Cash Flow Analysis help money flow directly into your savings. All of this logically flow into Talent 3 Investing, and by going step by step you are giving yourself all the tools necessary for financial success over the long term.
Instant gratification really is a killer to a saving plan...so the antidote is delayed gratification. Thanks @lighttorch for this wonderful insight.
Hey joshvel, in the west our instant gratification culture is an important variable for our low savings . abundance can lead to complacence so even if you can afford to overeat does not mean you should for health reasons. the same can be applied to your financial health. Thanks for the feedback
You got a 17.41% upvote from @upme thanks to @lighttorch! Send at least 3 SBD or 3 STEEM to get upvote for next round. Delegate STEEM POWER and start earning 100% daily payouts ( no commission ).
Hello @lighttorch upvote 77%
Planning is paramount before you start doing any work, you must establish clear objectives and attainable goals to get benefits. Interesting your post. Thanks for sharing.
I invite you to visit my profile, I would love to support me, Thank you.
Thanks mlaura for the your feedback and you are indeed right that clear objectives plus realistic goals is key to success.
This post has received a 16.22 % upvote from @booster thanks to: @lighttorch.
Interesting post, educational and easy to read. But, can you help me with some recommendations to apply in a hyper inflation economy?
Hey nowonline, I can let you know how I approach the current climate. Eventually there will be a currency crisis in the West but it is difficult to tell when this may happen. Diversification of currencies and businesses is Key to minimizing exposure to this. So the example would be I live in costa rica but have a business in EUR and USD and also have alternative crypto currencies. The very richest people have a completely diversified geographic portfolio that prevents a total loss of savings purchasing power. Secondly , there are assets that perform well in a inflationary environment such as gold stock and precious metals but do not go to heavily into these as I have seen to many people invest heavily into this only waiting for the collapse to come and losing a good portion of their asset value. It is a tricky question and would really need a entire blog to flesh out some of the permutations so thank you for the question.
Thanks for your attention. Yes, I know is not an easy question. I only wanted to know what would you do if you lived in a country like mine. It let me check if I can do something more, living in this situation is not easy. I know there's a way to surf all of this, it has to be, and it occurs to me to ask you while I was reading your post.
Thank you very much for your words.
You will want to look at your total situation which includes your income, expenses and investments. The best inflation hedge is working in a business that is in an industry that is not directly correlated the risk you are trying to mitigate. Example would be if you think the banks are over leveraged work for a bank that has low leverage. without knowing more about your situation it can be difficult to make any accurate suggestions.
Ini adalah negeri gelab yg di kisah kan dulu
It is so helpfull. I always looking for blogs that will be help me grew and educated. Thank You
Hey ejczpi, Thank you for your feedback and I am happy you are benefiting from the series.
Thanks for the enlightenment
Hey thompson, Appreciate the compliment and thanks for your feedback . Stay tunes for the next installment of the series.
I really like this article! Saving is incredibly important and undervalued.
One part I disagreed with, however, was the usage and avoidance of credit. Credit cards have tremendous benefits if you can pay off balances in full by the end of each month. If you never carry a balance, you can be rewarded for simply making regular purchases you would have made anyway.
Otherwise, this article is on point! I also think it would be good to recognize -- yes, you need to save -- but save to INVEST and have your money make more money for you!
Thanks for your feedback gogoogo, credit card usage tends to impact lower to middle income savers and is not as much of an issues for upper middle and upper classes. I worked for the credit card industry when I was starting my career and at the highest levels theses companies are predatory but this would need to be covered in another post. My main point is that credit cards increase risk and the month you cant make your full payment because your car broke down or you lost your job you will wish you had just avoided them.
Bello
Grazie per il tuo feedback
excelente blog siempre es bueno aprender y documentarse cada dia
Gracias por tus comentarios kevienestas