Saving part 2

On Saturday we had a poll about saving, and I was pleasantly surprised by the results.

I guess people who are reading a blog about retirement are probably a special subset of society, but it seems you are doing much better than most people at saving.

The results of the poll (on Monday afternoon) are as follows:

Saving is the foundation of investing. If you don’t have any money to invest, it doesn’t matter how brilliantly you do it, so these results are very encouraging.

If you are not currently saving, it probably seems very difficult. We only started saving seriously this year, but it has already become second nature. It’s kind of like brushing your teeth. At first you have to make kids do it, but after a while it becomes a habit and not doing it seems weird.

Here are my top hints for increasing your saving rate:

• Take the money out as soon as you get paid
  Automating this process is best, but I just log into my current account on payday and transfer the amount I want to save to another account. If you wait until the end of the month the money probably won’t be there.

• Start small
  Start with a really easy amount (say 5000 yen or so) and gradually increase it once you get into the habit of saving. Seeing the balance on your saving account increase is a great feeling and will motivate you to keep going.

• Figure out what matters to you
  I used to spend more than I made. I’d buy all sorts of gadgets and toys, often throwing them away just a year or two later. Eventually I realised that not only were they a waste of money, they weren’t making me happy either. Conscious spending or frugality is not a matter of penny-pinching or going without, but rather deciding to use money effectively. Now, I spend very little on things, but more than most people on food and travel (which do make me happy).

• Factor in the opportunity cost
  Whenever I think about buying something, I think about how much it is really going to cost me. One easy way to do this is just to add a 0 on the end of the price (saving and investing the money could end up paying you ten times as much) or dividing by 300 to give you the monthly income it could give you (this is based on a conservative 4% return).

• Save pay increases
  If you get a pay raise or do extra part-time work, save the extra money. It won’t affect your lifestyle so you won’t really notice.

Tomorrow we’ll get back to asset classes and the bond post I didn’t manage to write on Saturday.