Become aware of your ‘Internal Financial Thermostat’
Just like a radiator will turn off once the heat surrounding the thermostat is reached, your money will naturally settle to your own internal thermostat.
Sounds like nonsense, wishy washy stuff right? It’s actually a mental, psychological blocker - nothing in the universe is causing this. Fortunately this is great news, because it means it can be changed and it starts with you!
Become self-aware of your thermostat and understand what’s causing it.
To begin with, you need identify the root cause why you always fall short of the internal thermostat figure. Are you constantly going on holiday? Gambling? Spending too much of your wages you have to dip into savings? There is usually something you can identify and remove which will naturally improve.
Then you’ll need to work out why your thermostat is so low. In my experience, it’s always somehow related to the previous point…your spending habits, but also because you have put in a ‘break even’ barrier.
For example, you’re at the casino and you’ve won £100 from £30 - you may tell yourself you will walk away with £30. Naturally, you make poor choices that leave you back to where you started as you see the £30 as the ‘safety cushion’.
This is the same with your savings, if you break £5000 but always somehow fall short thereafter - it’s because you have mentally put this as the ‘break even’ area in your mind.
Start by raising your ‘internal financial temperature’.
Set a measurable goal
To successfully save, you need a clearly defined goal to work towards.
Just putting X amount away a months towards an arbitrary & loose ‘house deposit’, isn’t enough.
If it’s a deposit for a house you’re saving for, literally write down on paper - for example:
“I will save £20,000 within the next 12 months”
You now have a destination, now work backwards - what do you need to save a month to reach this figure?
Aim high and don’t be realistic, as if you fall short you are higher than your ‘safety’ zone.
Pay yourself first, not last
Most people associate saving with the money they have left after their bills and expenses.
You need to switch this thinking and pay your outgoing with what’s left after saving.
From your goal, work out what you need to save a month to reach it.
£20,000 over 12 months is £1,666 a month.
Instead of thinking, how can I afford to save £1,666 - think how can I survive on what’s left.
Similarly to dieting or bulking in the gym, you wouldn’t remove all calories or add all weight to the barbell straight away - you’ll be crushed, disheartened and most likely give up. You need to become accustomed to a certain way of living, slowly.
Begin by taxing yourself 10% of your monthly salary - then slowly raise it to the required monthly figure, then see if you can eventually extend further from that to reach your goal
Audit your outgoings
Go through your previous 2 months bank statements and determine exactly how much is spent on things you are required to spend.
For example, list out all direct debits (bills, rent etc.), food shopping & then leisure activities.
Determine whether you can live with cutting out any direct debits, then do so.
See how much you roughly spend on food shopping essentials - then see if there could be something to reduce this. Maybe using a service such as Gousto, or automated food delivery with the essentials.
Finally, see how much you spend on leisure; eating out, drinking. See how that can be reduced.
Once you have clearer picture on what your outgoings are, you can train your brain to live on this minimum figure and save the rest!
Put your money where you can’t touch it
Avoid putting your money in an easily accessible bank account. What I mean is the same bank as your current account where you can touch it.
Why? To avoid impulsive withdrawals!
Place it in a flexible ISA or investment account, something that can take anywhere between 5-7 days to withdrawal.
One of my automated investment accounts is with NutMeg, which is great for beginners or those who are terrible with saving!
This will mean you won’t be tempted to take anything out and will prevent any impulsive urges being fulfilled.
In the past, my savings fluctuated so much from being able to access my money.
Out of sight out of mind.
Automate your savings
Set up a direct debit to your savings instrument, simple!
Do not leave it to manual saving on ‘pay day’. You may be tempted to reduce the number or your ‘expenses’ will dip into your ‘taxed’ money first.
If your money is automatically pulled out, you will subconsciously accustomed to the figure that is left to ‘live on’.
Further automate your savings
Make use of systems such as ‘penny round-up’ services and algorithmic savings.
Money Box is a service that provides round-ups, you will be surprised how quickly penny’s truly ‘look after themselves’ when they are taken from your usual transactions. Say you spend £2.98 in a transaction, Money Box will take 2p (as many pennies to the pound) and place it into your savings. It’s money you would never know was there, being saved.
Plum automates your savings also, it determines based on the amount of money in your select current account against your spending habits and will take out money it believes you can afford to save. Plum is amazing because after a short while the savings are incredible, without even realising your saving.
You won’t spend what you don’t know you had!
Honestly, setting these two services up will supercharge your savings without you even realising.
Measure progress monthly
At the end of every month, go through your savings and see how you are progression with your goals.
Go back and audit your expenses again and see if anything can be reduced and refined.
Determine how far you can increase your monthly savings, however always ensure you are increasing your saving percentage each month regardless!
Every financial decision you make should be aligned to your saving goal!
Tempted by a holiday with friends? Work out the impact of your goal.
It all comes down to how serious do you want it?