The beginning of 2010 has seen the dust settling on the global financial crisis. The worst appears to be over, and world-wide, governments and business have recovery plans under way. Confidence is returning to business and households, with both groups looking to the future.
This is an excellent time for salary earners to re-assess their financial situation and plan their own recovery, and there is no better place to start than with personal savings.
While the past decade has seen salary earners spend freely with cash and credit, the next decade should see personal savings increase considerably. For this to happen, old habits must go, and new ones form. The habit of saving from every pay check works best if started early in life, but it’s never too late.
Save 10% of your gross income for financial stability
Saving 10% of your gross (i.e. your income before any deductions including taxes) is like the age-old practice of tithing. The only difference is that you’re paying yourself instead of a religious or charitable organisation. It works best if you never see the money to start with, so try this:
* Open a separate bank account, preferably not linked to a plastic card. This makes it harder to access for impulse buying.
* If your workplace allows, arrange a payroll deduction of 10% of gross directly into this account. If not, arrange this transfer yourself and keep it separate from other bank accounts.
This will force you to do two things:
* You now have less disposable income, so you must re-assess spending habits using another age-old tool – a budget.
* You will choose more carefully what you buy and how much you pay for it.
Along with the new habit of “tithing” yourself, both of these are good habits to have, and if used well, the balance in the special savings account will steadily increase.
As this balance grows, you could use part of it for a deposit for a major asset like a vehicle or home, or for investment purposes. Resist the urge to withdraw everything at once, or to buy consumables such as electronics, clothing etc. These should be funded through your budget.
This account enables sustainable wealth creation, and provides accessible “safety net” funds for unexpected emergencies. In the process, you will aid economic recovery by reducing credit and increasing the savings level of the entire banking system.