This post is inspired by the article of the same title, from the magazine Entrepreneur, January-February 2010 issue.
Lately, I have been browsing through magazines quite a lot. I even bought some back issues of Yummy and Food magazine, while the boyfriend got himself copies of old Maxim and FHM. I try not to buy too many because I still have quite a number of books that I haven’t even touched since I bought them. Besides, I figured I should try at least one or two recipes from the foodie magazines before I bought additional ones.
Two weeks ago, while waiting for the boyfriend to meet up with me at the 7/11 store outside my office building, I was compelled to purchase a magazine so there’d be something to do while waiting (he made me wait for almost two hours!). There were a lot of showbiz magazines on the racks, but I didn’t want to spend on those. So I picked Entrepreneur.
On page 29 of this issue is an article by Henry Ong, President and COO of a financial consulting firm called Business Sense. In it, he outlines how he suggests one may setup a savings plan. That’s exactly what I need! Okay, that’s not really the reaction it elicited from me. Personally, I had an idea for how I could save, and a year or two ago I was really following a budget that I would set every payday. But I’ve fallen off the bandwagon and I want to get on again, and this time take the boyfriend along with me.
So here’s what we’re going to do, patterned after Ong’s advise:
Start immediately. Easy enough. I commit to starting right away so I’ve already transferred the money I got left from my previous paycheck to my savings bank account. Check (did on payday Friday). I signed up the boyfriend to commit to saving as well. He’s onboard.
Allocate savings. For starters, I’ll commit to saving 10% of my paycheck. Ong suggests starting at a lower number and then incrementally ramping up to your ultimate goal. Start with 3% for example, and increase it to 6% after three months. This is to get yourself accustomed to it. Makes sense, specially if a lifestyle change is in order. In my case, I think the need to save is more urgent. I don’t want to have to wait.
The article also mentions that the amount you allocate for savings will also vary, depending on your age. If you’re already 50, perhaps 20% would be a good target.
For the boyfriend, I have asked him to turn over 3% of his next pay. Regardless of how much he gets and how much he needs for his expenses, he will have to give me 3% so I can keep it for him, as savings. Imposing am I not? Yes. We need to do this, for both our sakes. 🙂 He’s agreed. He also expects this to get bigger eventually. We both know it’s doable.
Pay yourself first. The 10% from my paycheck and the 3% from his, will be deducted even before any expenditure is done. This will be deposited to a separate bank account. I have my own and that’s where mine will go. We’ll open a separate account for him.
Contribute more to your savings. We’ll classify our expenses – needs versus wants. I’ll also draw up a budgeting plan. At the end of the two weeks (normally the time it takes until the next payout), whatever is left will go to savings. We each are supposed to get performance bonuses. That’s where we’ll get money for rewards. No bonus, no rewards. We’ll still try to keep some of the bonus and add it to our savings.
Monitor your plan. This is a plan, it may work, but it could also fail. What we have at this point is a commitment to make it happen. We’ll re-evaluate it after sometime. Adjust our goals according to our needs and actual expenditure. In time, if there’s enough to invest, we’ll study our options.
Sometimes it also helps if you have something concrete that you’re saving for: a house, a car, a wedding, or in preparation for a baby. Say for example, you’d like to get yourself some life insurance. First thing to do is to get some information on life insurance rates that would be suitable for you, once you have an idea then you divide that amount by the number of payouts that you have to make up the budget (or for the monthly payable, for example). That should give you an idea how much you really must set aside from your salary. Makes sense?
I hope I’ve helped give you an idea on how to start your own savings plan. Do feel free to share your best practices too. 🙂