Perfect the art of saving for that dream holiday
WE ALL love to spend, but I’m a huge fan of saving. And when you are saving up for something, you take your life to new heights and give your money a clear direction.
Here’s my three-step plan:
1 Clear your debts first
First, get rid of any debt. Debt (unless it’s an interest-free debt) will be costing you dearly. This doesn’t apply to mortgage and student loans, but it definitely does apply to credit cards, store cards, loans and overdrafts.
Pick off your debts one at a time, aiming to clear the ones with the highest rates of interest first, and then shop around to transfer your loans and credit-card balances to cheaper deals.
2 Create a slush fund
Once those debts are paid, aim to set up a slush fund to act as an emergency back-up in case you lose your job, you need major repairs on your house or you have an injury that keeps you off work.
It can be challenging to find the discipline to put money away when it’s not for a clearly defined goal, and it is even more difficult to avoid touching this fund when you want something. Put the money into an account that you can’t access easily, then give it a name to make it seem real. I call mine Dead Money because this helps me regard this fund as untouchable.
3 Set your savings goals
Money needs direction or it will get lost. Psychologists talk about process goals (related to changing your behaviour), performance goals (how far you want to go) and outcome goals (the result you are aiming for). When it comes to effective savings, I recommend setting your outcome goal first (such as £5,000 in the bank to pay for a trip to, say, Mexico), then identifying your process goal (putting plans in place to set money aside each week/month), before deciding your performance goal
(how fast you want to achieve that goal will determine exactly how much money you need to put aside each week/month).
Don’t beat yourself up if you find it hard to save at first. Remember, it’s like weighttraining or building a house: it doesn’t happen overnight and it’s not always fun.
But it will come and it will be worth all your hard work in the end!