As a financial consultant, I have always respected my clients who painstakingly track their expenses on an excel spreadsheet every month.
But recently, I realized that the bank balances of one of my good friends have not improved much, despite him tracking his expenses on a weekly basis for years. My instinct as a financial consultant is to seek the root of the problem. I discovered that he does know where his money goes to, but he did not really set aside money into savings.
What he was doing was:
Income – Expenses = Surplus / Deficit
Yes. You can track your expenses, and you know roughly how much you can save per month. But that should not be the way! That is like leaving your future to chance. Unexpected expenses always pop up and the big surplus you are hoping for never appears.
It is very important, to always have a budget, and savings set aside monthly. (If you actually want to grow your wealth, if not, you can just forget about what I am going to mention below.) Use the equation below instead:
Income – Savings & Investments = Expenses
As simple as that. A slight tweak in the equation.
A disciplined saver should always have a savings target on his mind before he starts to plan for spending. Of course, the savings ratio must be realistic. You do not have to eat instant noodles or bread every day just for the sake of wanting to achieve your savings goal.
Well, that’s my first question to you: think about it… Are you really saving? And if you think you can save. Congratulations!
Now here is my second question to you: is your savings account really a savings account?
I have another friend, who consistently sets aside $2,000 per month into his savings account. However, after working for 5 years, his bank balances did not improve either.
After chatting with him, I discovered that all of his monthly GIRO bills are deducted from this “savings account”, and the total GIRO amount can be as much as $2,500 per month. (Yes, you did not see it wrong, it can go negative sometimes). Furthermore, this does not include his ad hoc vacation plans, which are also paid for from this savings account. *facepalm*
So, in fact, both the “normal bank account” and the “savings bank account” are used for expenses and neither has much balance left over at the end of each month. Are there really savings left?
So, is YOUR savings account really a savings account?
Savings requires strong discipline. But it is also important for us to properly sort out our savings intention, and the mechanism. DO NOT trick yourself into believing you save a lot monthly when you do not.
Be real to yourself. At the end of the day, you are only answerable to the future you.
Yeoh Yee Teng